Check Point Software Technologies Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 6, 2024

There are 9 speakers on the call.

Operator

Conference. I'm Kippie Meintzer, Global Head of Investor Relations. And joining me today are Founder and CEO, Gil Schwed and our Chief Financial Officer, Roy Galan. Before we begin, I'd like to remind everyone that this conference is being recorded and will be available for replay on our website at checkpoint.com. During the formal presentation, all participants are in listen only mode to be followed by a Q and A session.

Operator

During the presentation, Check Point's representatives may make 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. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those discussed in Check Point Software's latest filings with the Securities and Exchange Commission. Any forward looking statements made speak only as of the date hereof and Check Point Software undertakes no obligation to update publicly any forward looking statements. In our press release, which has been posted on our website.

Operator

We present GAAP and non GAAP results along with the reconciliation of such results as well as the reasons for our presentation of non GAAP information. If you have any questions after the call, please feel free to contact Investor Relations by email atkipcheckpoint.com. Now I'd like to turn the call over to Gil Shwed.

Speaker 1

Hi, everyone. And I'm pleased to See you all, I want to start with this picture and then I'll turn it into the financial results. But I've started my journey in Check Point exactly 31 years ago, Just before we started the company in February of 1993. And since then it's been an amazing journey and amazing growth, which is not over. And I just want to I think you've all read the announcement today that I intend to transition my role into an Executive Chairman, which means that I'm going to I want to be super involved in Check Point, super involved in the future of Check Point and shift a lot of my attention from the day to day management of The company into shaping the future of the cybersecurity market and Check Point in particular.

Speaker 1

I think I've gone a long way. I didn't Start quite a bit, but I started when I was 24 years old. I've grown a lot with Check Point. I think I've changed my I've learned a lot. I've changed my management style, and I think I'm ready for that next step, which is to move into an Executive Chairman role.

Speaker 1

So I want to thank you all for your support. It's on we are not doing anything today. We're actually starting the journey. And I think starting tomorrow, we will start a more a fairer way succession planning process. We will start a search For replacement for my current role as CEO, this will take anything from again, We may be lucky and it will be very short, but to find the right person, to find the right Men and women or men that can be the Check Point as CEO can take usually would take anything from 6 months to 2 years.

Speaker 1

We are all in Check Point super energetic about 2024. I'll talk more about that in the slides later And about what's going on and I'm very excited to start the year and also start the journey into finding a replacement. And In the future, and I hope it will be in the near future, we'll step into the Executive Chairman role. So with that, I think I'm ready to Move the torch to Rohit will take us through the numbers and then I'll talk more about the vision, the business trends that we've seen this

Speaker 2

Thank you, Gil, and thank you everyone for joining the call today. So I'm excited to be here with you today and begin the review of the Q4 for 2023. We had a strong quarter with the operating income of $309,000,000 Representing a growth of 7% year over year with a very strong operating margin of 27%, non GAAP operating margin of 27%, Our revenues reached $664,000,000 $3,000,000 above the midpoint of our projection, while our non GAAP EPS was $2.57 $0.02 above the top end of our projection. As for the full year, our revenues AI's portfolio of 2023, our revenues reached $2,450,000,000 representing a growth of 4% year over year, while our EPS reached $8.42 14% growth year over year, actually the highest growth in EPS since 2011. Moving to the revenues and other and deferred revenues and billings.

Speaker 2

So as I indicated, our revenues grew by 4%. Our deferred revenues reached $1,908,000,000 representing an increase of 2% year over year, while our short term deferred revenues reached $1,414,000,000 a growth of 4% year over year. Our calculated billings reached $862,000,000 While our current calculated billings reached $831,000,000 and same as I mentioned in our in Paribas, actually since I think the beginning of Due to high interest rate environment, we saw also in this quarter few customers that are willing to pay upfront for multi year deals, We chose already being shorter billing duration. Also in Infinity deals, billing terms are more flexible. We have much more Infinity.

Speaker 2

The Infinity become more and more significant Business and the billing terms are much more flexible there. So some of the annualized booking that we'll show you in the next The two slides are not built yet, but they are included in our backlog. The remaining performance obligation, which is actually it's also our backlog is Approximately it's approximately $2,250,000,000 to $49,000,000 that was ending a growth of 5% year over year. So our revenues growth was driven mainly by our subscription revenue. We see consistent strong subscription revenues growth of 15 Sent this quarter to $266,000,000 This call is mainly driven by strong performance, strong demand for our Infinity platform, Infiniti consolidated platform and the Harmony Email, we continue to see strong momentum for both of them and that's That's what we see here the 15% growth in the last quarter.

Speaker 2

Moving into the Something I want to show you this quarter, we did see a real positive turnaround this quarter. I think what we've seen is It's internal metric that we are following, but this is the new business annualized booking that we've seen this quarter. We did see double digit new business growth Across all geo, by the way, it's not only specific geo. We did see double digit new business growth in all geos. We do see the turnaround, the real turnaround that we Started to see in Q3.

Speaker 2

We mentioned it in Q3. Auto in Q3, it was still approximately flat. But in Q4, we did see a really positive turnaround with double digit growth. And as I mentioned, we expect it to be translated into billings and revenues in the next few quarters. As indicated, we continue to see strong adoption for Infinity platform.

Speaker 2

Infinity consolidated It will continue to flow in an accelerated way to our revenues with a strong double digit growth year over year. In this quarter, the revenue on Infinity Keep exceeding the 10% of the total revenues and we can see more and more customers and also new customer adopting our platform, which enhancing their On which Enslendly donate under 1 umbrella of product and services. As for the revenues by geography, we saw strong demand in America. We see 42% of the total revenues came in America and it's represented double digit growth in revenues in America, Mainly driven by Infinity's strong demand for Infinity and Harmony EMEA Business. 48% of the revenues came from EMEA And the remaining 10% came from Asia Pacific.

Speaker 2

Important to say, as I mentioned in the previous slides, that also the new business bookings, Annulus booking in these deals went up double digits. So I think it's a very good momentum positive momentum that we've seen in Q4. And now let's move to the P and L this quarter. Our gross profit increased to $591,000,000 Representing a gross margin of 89% compared to 88% last year. Our operating expenses increased by 4%.

Speaker 2

The increase was mainly as a result of our continuing investment in our workforce, our recent acquisition and also investment in cloud infrastructure and marketing. Non GAAP operating income continues to be strong at $309,000,000 7% growth year over year and up to then the 47% operating margin Compared to 45% operating margin last year, the improvement in the operating margin is a result of 1.5 points better gross margin that we can see here, another 1.5 points benefit from FX to on Bildoral mainly around against the shekels, Which offset by approximately 2% headwind related to our recent pre acquisition. So that's explained the improvement that we see here in the operating margin this quarter. As for the financial income, we see our financial income this quarter reached $18,000,000 up as we keep investing in higher interest rates over time, our non GAAP taxes for this quarter was around 9% due to our tax provision and deferred taxes. We do see that the tax expenses in this quarter were significantly higher than last year, but it's mainly because of Tax accounting and in the end and you're going to see it in the next few slides that the effective tax rate for the full year is similar in 2023 or close to 2022.

Speaker 2

As for the GAAP pay, net for the non GAAP net income, it was $298,000,000 or $2.57 per diluted share, Crossing the top end of our projection by $0.02 and a 25% growth year over year, our GAAP net income was $249,000,000 or 2.15 dollars per diluted share, 2% decrease in overall and it's mainly due to higher amortization related to our recent acquisition of Mediocre Perimeter 81. Moving to our cash flow and cash position. So our cash balances as of the end of the year was $3,000,000,000 Same level as we had in Q3. Our operating cash flow was strong at $236,000,000 this quarter, presenting a growth of 3% year over year. We also continued our buyback program and purchased 2,200,000 shares for $313,000,000 at an average price of $142 per share.

Speaker 2

Now let's review the 2023 annual performance. So our revenues, as mentioned before, It grew by 4% to $2,415,000,000 Our gross profit increased from increased to $2,154,000,000 Representing a gross margin of 89%. This is a result of significant improvement during the year in the supply chain environment, which is Much better than what we've seen last year in 2022. Our operating expenses increased by 7% to $1,075,000,000 The increase was mainly as I talked about continued investment in our workforce, cloud infrastructure, marketing, travel costs and of course, Listen, the acquisition that we have that we completed in September October, this year, our non GAAP operating income Continue to be strong at $1,079,000,000 or 45% operating margin Similar to what we've seen in Latin in 2022. Looking into next year and our operating margin, we need to take into account The recent reacquisition that we completed in September October that will have an headwind of approximately 2 points to operating margin in 2024.

Speaker 2

On the other hand, we do see a tailwind of approximately between after point to one point related to Strongdales dollar and we feel shekels It's going to benefit us next year in 2024. So as for the financial income this year, our financial income this year reached $77,000,000 as we keep investing higher interest rates over time. As for 2024, we are expecting to see incremental financial income every quarter of approximately $1,000,000 As for the tax expenses in 2023, they amounted to $159,000,000 and our non GAAP tax rate We see it was around 14%, similar to what we saw in 2022. As for 2020 for tax expense, we are Segmented to be around the same level of 14% effective tax rate, non GAAP effective tax rate in each quarter and also annually. Our non GAAP net income increased to $997,000,000 or 8.4 $0.02 per diluted share, crossing the top end of our projections by of the original projection by $0.02 and are presenting the growth of 14% year over year.

Speaker 2

Our government income was $840,000,000 or $7.10 per diluted share, 13% growth year over year. As for the number of shares for 2024, we expect the average diluted share to be somewhere around 113,000,000 shares Starting in EUR 160,000,000 in the end of 2020 and going down by the year end to somewhere around EUR 111,000,000, We expect to see a decrease of approximately 1,300,000 shares every quarter as a result of our expected buyback. And we need to take into account also the IL stock price that means that again, we're going to keep our buyback in the same in the box in the same dollar amounts, But it means that we're going to have we're going to buy less shells if the stop price will stay in these levels. As for the operating cash flow for the entire year, it was strong with $1,035,000,000 of operating cash flow. In 2023, the operating cash flow include also $25,000,000 related to our acquisition, the founder of OpEx costs related to our acquisition And another $39,000,000 cost related to our aging activity.

Speaker 2

At the start of our buyback program, we purchased during the year Almost $10,000,000 I would say, dollars 9,900,000 sales for $1,300,000,000 at an average price of $131 per share. To summarize our results, we had a strong result. Revenues for the quarter was above the midpoint and EPS exceeded our projections, Acceleration in quarterly and annual subscription revenues, strong performance that's driven by strong performance of INFINITI And on the email, we did see a very real turnaround, a positive turnaround in our business environment during Q4 with double digit growth in new business annualized booking And strong profitability, a 47% operating margin in Q4 and 14% EPS growth for the full year of 2023. And now I'll turn the call over to Pip.

Speaker 1

Thank you very much, Rohit, and thank you, everyone, again for joining me. Let me give you a slightly Discussion of what we've achieved and mainly what's our strategy moving forward and the differentiators of Check Point. So Just to recap some of the points we've talked about, I think overall we had great results in the Q4, exceeded EPS, Did the 15% growth in subscription, double digit growth in revenues in Americas. And I think Overall, I think for the year, I'm very proud that we had a very strong execution. We started the year, just want to be clear, it sounds like everything was amazing, but no, we Started the year, we actually ended 2022 with what we think was a very tough economy when customers held back on projects, Postponed investments and they actually the level of new business was going down.

Speaker 1

It lasted for 4 quarters from Q4 2022 to Q3 2023. And I think last quarter, we showed you that we're seeing the signs of a slight turnaround. I don't know how much of that turnaround is a result of the economy and how much of that is the result of the great execution of the Check Point team with doubled customer engagement, Which led to an increased pipeline in all geos. And I'm very glad to say that in the Q4, we've seen double digit growth in our new business, In our internal measures, I think Roy showed you the slides. I will have it again at the end.

Speaker 1

I think that's for me, that's a very Strong indicator of the change that's happened and I truly hope that this change will continue in 2024 and that we'll get a tailwind and not headwind from the economy. But let's speak a little bit about some of the wins. We talked about the Infinity platform and its importance. We have hundreds of customers now is our generally customers with high volume of business with us. We take our platform.

Speaker 1

We use it on multiple Layers of security and you can see here some of the names company I mean like the best names in The best brands in the world, companies like FedEx, Benetton, Bayer, Pirelli. And again, you can see here that we have it on almost every industry And different parts of the world. Very proud of that continuous achievement that continued throughout the year and throughout Q4. I think also in terms of our recognition in the industry, You can see here industry analyst leadership. And you can see number of leadership mentions that we got every year, 2019, 2021, 2022, 2023.

Speaker 1

And you can see that it's increasing in a very drastic manner every single year, which means that our products are getting better, our marketing is getting better, our Security is getting better. Customers, analysts all recognize that, and you can see the different spaces to the left, endpoint, firewall, Cloud network security, email security, workload protection, cloud posture management, Sassy, Secure Access Service Edge, XDR, I think it's a very good testimony to the Check Point product team To be able to get into a leadership position in so many categories. So we're very proud of that and I think it shows. I think for 2024, our focus is what we call the platform company. The Infinity platform that we have, we've talked about it in the past, but it's getting more and more important and more and more focused.

Speaker 1

And there's 2 main attributes that I want to emphasize when we speak about the Infinity platform and then will be the 3rd one. 1, it's Cloud delivered, so many services that are delivered, assisted from the Check Point Cloud. And second, which is AI powered and we talked about the beginning of 2023 that it's going to be the year of AI. I'm going to demonstrate a little bit about the fact that it was a year of AI And now we have AI very, very much embedded into every aspect of our products. And I think we're pioneering and leading in that aspect of AI in cybersecurity and AI on the kind of products which we produce.

Speaker 1

Last but not least, we talked about the 3 Seas comprehensive, Solidated and collaborative for cybersecurity and I'm going to touch on that and especially focusing on one element of that and that's The collaborative nature of the platform. But let's start a little bit with ThreatCloud. Fred Cloud today, there's more than 90 secondurity engines that know how to identify, block Every type or many types of attacks. Over 50 of those engines are already AI Powered, it was 40 last year. It was 80 engines and 40 AI powered last year.

Speaker 1

You see both the number and the percentage grew that year, which means that every month we introduced Approximately one more one new engine to the Infinity platform, and that's a huge strength. And what makes it a Platform is that these engines can be used by many different delivery vehicles. Delivery vehicle can be the network security gateway, it can be Email security, it can be the cloud security and every engine we've did our internal audit, almost every Engine here is used by multiple delivery methods and that's the strength of the Check Point platform. We make an investment in advanced security. This investment Can then be used by the customer in multiple places, in multiple vectors.

Speaker 1

And the result is that we blocked $3,000,000,000 yearly attacks. We prevented 3,000,000,000 attacks just last year. That's a huge number. Think about that. I've talked about the AI powered.

Speaker 1

So what you've seen in the previous slide is how it's AI powered in the back end on the threat cloud, but that's the big Relevation for this year for the beginning of 2024. We make AI also go to the front and we take full advantage of generative AI. So what you can see in this demo, I won't do it, but it generated a lot of excitement when I showed it on stage last week on our CPX conference, Something that would have taken an analyst anything from few minutes to few hours to analyze to understand why Emily Jones cannot Since the SAP server in America. And as you can see with one sentence to our generative AI, the Infinity Copilot, It analyzes the situation. It explains why she wasn't able to access it.

Speaker 1

It suggests a solution either to a certain group. It asks the user wherever they want to implement this change and wherever they want to install the new policy. And boom, In a matter of 1 or 2 minutes, everything is done. Now it's not as simple as it Sounds because I mean, we are all experiencing with generative AI and we know how powerful it is. But to connect it to that system, We're not uploading all the user data to the AI cloud.

Speaker 1

We are not which is huge amounts of data. It's not real time. It's actually the opposite. We thought open AI we thought the AI tools about all our interfaces, all our different systems around the world. Some are cloud based and some will be even on-site.

Speaker 1

We connect it all and we let the generative AI tool Create the right calls and use to the full advantage the Check Point architecture, the Check Point platform to make very smart moves on behalf of us as a users. It can be used for troubleshooting. It can be used for policy management. It can be used to analyze security events, And it will give you advice in second. And this is not the future.

Speaker 1

This is not what will happen in 2025. This is happening now. Customers can work with it, customer can use it. We just opened it last week to customers and they know our CPX in Bangkok, we had huge Lines of customers that wanted to experiment that in our expo and many users that started registering who use that on their instance on Infinity on our Infinity portal. So I think that shows you Some of the things we are doing as far as I know, we are pioneering in the industry in that and we are way ahead of everybody in the industry in showing the use Compared to our companies similar to us in that aspect.

Speaker 1

I've talked about the cloud delivered aspect Of the platform. And I've showed you the the Infiniti architecture in the cloud in the middle, just to understand how much this part is really in our platform. 80% plus of our security gateways, which is the big part of our network, already use the threat cloud. They already use Few services from the ThreatCloud and whenever they get a connection or whenever they get the relevant connection, they call the ThreatCloud, they consult and they ask for advice. And this is And ThreatCloud gives them real time advice about how to handle a certain type of threat.

Speaker 1

And 100% of our email, Endpoint, mobile and cloud workloads work with the Infiniti Threat Cloud. So almost all of our customers and installations Are already part in the threat cloud and there is so much room for growth in that because again, it's not only that we can go to 100%, but we can also use more and more Cloud services by each and every customer. And I think that's huge in terms of making it a true platform that is cloud delivered. So this is a pretty big part of our business these days and we're very proud on what we've Done with that and the value and the security that we can deliver to customers that nobody else can. And last but not least, I will speak about the most important element I think that will focus in 2024 and that's the collaborative nature of the platform.

Speaker 1

What makes this platform unique, what makes this platform more powerful and better for every customer is the fact that actually all the elements here collaborate. So if we see an attack, we know how to block the attacker everywhere. If we see an attack, we see the indicators in vet attack And make sure, for example, we see in the malicious file that the indicators that we file in the file We're not present anywhere else that we quarantine the compromised endpoint that we've If we see somebody scanning on our network, no reason we will let them complete the scan and do more scan and come from another place Until they fly find the weak link, the opposite. Let's block them. Let's make sure that if we identify a scanner, We will put them in a way that they won't be able to access our network at all.

Speaker 1

So this is a very powerful platform, Unlike other very complicated systems that exist in the market that requires many, many months of Training and 1,000,000 of dollars of investment. This is simple. It works out of the box. And the idea here is to unveil the power Of the collaboration of the Check Point platform. And also by the way, it's available for 3rd party product to every customer.

Speaker 1

So I think we're making here the first few And I think it's a very important it's not just a vision, it's not just a technology, it's actually technology that works And can be used by every customer. And when we see collaboration on many, many other aspects of our Platform and my focus is to make sure that we that all our products collaborate. So I think when we look at all of that, the threat cloud AI, the brain behind that, the fact that it's cloud delivered to almost every customer and every installation, And the collaborative element of all the different elements within one customer installation and even between multiple customers through the cloud That creates automation response, deliver the best security, one need to ask yourself, okay, so what does it end up? Does it end up Generating, delivering the best security or better security than others. And what I want to share with you here is a little bit of that is the latest Myricom report that shows the effectiveness of it.

Speaker 1

So Myricom did this survey last year, which I think we scored like 99.7. This year, they did it again. We scored 99.8. So it's nice to see an improvement even with such numbers. We're talking here about what's called 0 day plus 1 attacks.

Speaker 1

That's a tax that exists for one day. So they are new. Usually platforms don't know how to deal with them. And they did a test for 100, I think almost 500 different Tax like that, but we're very fresh and you can see the effectiveness. You can see where Check Point stands, blocking pretty much All the attacks that you can see with the competitors are way, way, way behind.

Speaker 1

Now I think we all understand the difference between 70% to 100%. But it's not just 50% better. It's much, much more than that. Actually, it's almost Infinitely better because let's understand what it means. And we ask our researchers at Checkpoint, how many different families, types, new attacks Can organization face or exist or come can come up in an organization way in a period of time, let's say for a year.

Speaker 1

And we said like facing 177 new families like that can be very typical for an organization per year. Now let's see how many of them would be blocked by each product. And you can see with Checkpoint, it will be 100%. 0 attacks will get through. Nobody will be able to cross this platform that knows how to address this kind of an attacks.

Speaker 1

And you can see with your competitors, anything from 28 to 92 attacks can get through their security. And that means that you both have something, you invested, and yet Dozens of attacks can go through your security infrastructure because we are new, and that's not What we need, we need the platform that can prevent against the known and the unknown attacks, the most sophisticated attack, the 5th generation attacks. And I'm very proud that that's what Mayre confound with Check Point delivers. And if I'll quote, we're CEO. We said it last year, even though what you see here is the results From last week, this is very updated results from January of this year.

Speaker 1

He says basically prevention is number 1. Number 2 is the victim, and you don't want to be that victim. And I think that's what we are aiming to deliver, and I think I'm very, very proud of our Team around the world that works very hard to deliver these results. So I think altogether, if we see that and if we see The platform. We have the Quantum family to secure the network, the CloudGuard to secure the cloud, Harmony to secure the workspace, including email endpoint, everything.

Speaker 1

All of them use the Infinity core services, the ThreatCloud, the Playblocks, All of that and many, many other core services that we have in the middle to deliver the best security, and I'm very proud that we're able to do so. So before I conclude, let me just one more thing to share with you. We've opened the year last week with our CPX experience, Checkpoint Experience Conference, first time in 4 years that we are doing it in full force physically. Thousands of people are going to participate in that. And we had the first one, which our kind of our pilot one in Bangkok last week.

Speaker 1

1500 people participated, very high rate of participation and even of attendance. Almost everybody that registered actually showed up, Which is also a good indication of the enthusiasm. The highest satisfaction rate ever over 9 and the highest Inspection, we measure it on many, many different aspects. They were all very, very strong. It's not just the organization and the conference.

Speaker 1

It's the content. It's the relevance. It's The fitness of Checkpoint and we rate even each individual session. All the sessions got very high score, which I was very proud of all the people in Checkpoint to do that. And for me, it was great to see so many people after such a long time and the level of enthusiasm, It was heartwarming to see that people are truly enthusiastic and truly need for the best security.

Speaker 1

I met Personally, in small roundtables with, I mean, 100 to 200 customers, partners in these days and I got a lot of feedback and I'm I mean, I'm again, Now after COVID, it's like 4 years, but I never had this such an experience. And it was an amazing experience to see what we've seen. And I hope it will mean good for the next Two conferences that we are going to hold in Europe in 2 weeks and in America exactly in a month from now in Las Vegas. So I think that's a good start sharing all the product news, showing AI in action and getting the customer to participate in that. So if I need to summarize, we finished we started 2023 and you see it here in the graph with a very challenging market condition.

Speaker 1

And despite those challenging conditions, I'm very proud with our team that was able to Conditions, I'm very proud with our team that was able to produce good results every single quarter. We finished it with a very strong finish turning into double digit growth in new business, which is my main indicator To the health of the business driven by the momentum of Infinity, strong profitability, 47% last quarter, 45% for the year. And I think I'm very proud of all the innovation that the Check Point team did in 2023 that will deliver now in 2020 For again, AI powered and cloud delivered. So I mean, I think it's a good summary and you can see how enthusiastic I am for the future of Check Point and with our team. And before I open the call for your question, So just quickly go through our projections for 2024 and the Q1.

Speaker 1

You know my regular caveat that you cannot predict the future. But despite that, I'm always sharing our projections based on what we see In our pipeline with our sales force and a little bit of the market trends And so I'm ready to share the 2024 projections and the Q1. So let's look at 2024. Revenues are going to be in the range of $2,475,000,000 to 2.625 $1,000,000,000 which means growth of 6% in the midpoint and 9% growth at the high end. Non GAAP EPS is expected to be between $8.70 to $9.30 7% growth in the midpoint, 10% growth The high end GAAP EPS is expected to be approximately $1.70 less than that.

Speaker 1

And I think this is pretty good numbers that we are starting with. I think Roy also indicated the challenge. It's not a challenge. I think if you look at the EPS, I think it's very healthy and I mean it's great numbers, but with the number of shares not declining in the rate that we anticipated, thanks to you guys and thanks The increase in share price, so I think it's a good phenomena. And let me maybe focus last slide on the Q1 and the projection there.

Speaker 1

Revenues are expected to be between $575,000,000 to $610,000,000 5% growth at the midpoint and 8% growth at the high end. And non GAAP EPS is expected to be between $1.95 to $2.05 11% growth at the midpoint and 14% growth At the high end, GAAP EPS is expected to be $0.44 less. And again, I think this is going to be pretty healthy numbers To start the year and I hope that all the effort and the trend that we've seen in customer engagement, building pipeline, technology pipeline, Products that we are launching and hopefully with some help, some tailwind from the industry and From the economy, we'll be able to translate that into these numbers and maybe even better numbers. So Thank you, everyone, and I think we are ready to open the call for your questions.

Operator

All right. As a refresher, Please limit your question to 1, so we can get through as many folks as possible at year end here. We end up with limited amount of time for Q and A. So our first question is going to come from Adam Tindle at Raymond James, followed by Patrick Colville from Scotiabank.

Speaker 3

Thanks, Kip. Gil, I just wanted to start with your announcement and Congrats on many years of building such a strong profitable company. But I guess I'd like to start with asking why now? It sounds like based on the initial guidance, we're at a point of acceleration at Checkpoint. So why was this the time to make that announcement?

Speaker 3

And secondly, the characteristics that you'd be looking for in a successor, the key vision items that you and the Board would like to see? Thanks.

Speaker 1

Okay. So first, an excellent question. I think there's no good time to do these kind of changes, and I'm struggling with that question. I mean, people ask me when are you going Move on. When are you going to do something else for approximately 27 years now, almost since we went public?

Speaker 1

And I think my answer was pretty straightforward every single year. I like what I'm doing. I like Check Point. That's my life mission. I want to stay here and I want to make it successful.

Speaker 1

Of course, when times are tough, you always ask yourself, maybe I should do something else. But then it's again, it's a time you say, if times are tough, then I need to be here. I need to Make sure Check Point is successful and it's not the right time. And in the last few months, I would say, I've been Struggling again with that question. Now again, I'm fully committed to Check Point.

Speaker 1

I intend to stay in Check Point and work at Check Point. So don't get me wrong. I'm not going away. Checkpoint remains my life mission and I like what I'm doing and I think you see it in everything I'm doing and What we have and I finally got to the decision to announce it now and start the process now. I think last week When I saw that everything is working and everything is its place.

Speaker 1

The products are delivering. The results are excellent. The trends that I've seen internally in the Q4 were excellent. And again, I got it last Because I met the people in Bangkok in CPX and I showed I've seen the level of enthusiasm and customers. Actually, I was even more Encourage when I saw even prospects that came to the conference and wanted to hear about Checkpoint.

Speaker 1

And I said, it's the top and that's the time To start the process. Now remember, I think it's important to understand we're just starting the process. We haven't started the search yet. So it will take time. I wish we will able to find somebody very quickly, but these processes usually takes between 6 months to 2 years.

Speaker 1

So so I'm not again, I'm here. I'm staying. And once we identify the right person, I will work with her or him to do the right Passes of the torches and then I intend to stay here. Executive Chairman means it's not just a title. I want to stay at checkpoint.

Speaker 1

I want to dedicate more time and I want to Select the subject that I'm working on, whether it's the future of cyber, whether it's new security technologies, whether it's making everything in the Checkpoint platform work and From work and take and simple like I would like it to be, whether it's meeting more customers, Partners because it will give me more time to hear them and understand them. And maybe it's supporting the management, which is by the way, maybe the last point that I didn't mention about Timing is the management of Check Point. I think we had an amazing team that runs the business. So I mean it gives me the comfort That the checkpoint is in good hands, and I think that's maybe the most important element when you think about that. So I think that's the explanation for the timing.

Speaker 1

The characteristics of the candidates, so as I mentioned again, We are starting the process and we will refine that. I would look for somebody that's very passionate about Cybersecurity, I think what Check Point stands for is the best security. So I want somebody to promote that value, care about it, understands that and so on. So that's 1. I would look for somebody that's that has many checkpoint characteristics that I mean, can is detail oriented, understands the big picture, understands the details and so on.

Speaker 1

But I would look for somebody that's very outbound, that's very sales oriented, that can go out and meet with customers and partners and travel the world And represent Check Point in every step of the way. We have people like that in Check Point. We have strong leadership today at the top levels of the company, but You can always do more in that. The opportunity that we have is huge, and I think the more we get there, the better we will do. This will be my top characteristics from a candidate, somebody that can be a good partner For me, augment my skills with other things that think can be the can work for the benefit of Check Point.

Operator

All right. Our next Questioner is Patrick Colville from Scotiabank followed by Joseph Gallo of Jefferies.

Speaker 4

Thanks, Kip. Yeah, just to reiterate that, I mean, Gil, it's been a real pleasure working with you. Think we can all agree, you're definitely one of the OGs of the security industry, and we wish you all the best in your new exec chairman role. Let me ask you about the guidance. The fiscal 'twenty four guidance is no doubt impressive.

Speaker 4

My kind of quick math Suggest it's a reacceleration. Can you just talk about the inputs to your guidance? I mean, touching on The product line and the kind of key subscription line as to how you got to that forecast?

Speaker 1

So first, thank you very much. I'm Roy can add. And once I finish, I'll give the high level. I think what we are basing that forecast is primarily On the projections from the sales force and the pipeline that we see, and I think the engagement that we did in 2023, if you remember in 20 23, I spoke a lot about customer engagement and how much we need to go out and meet with our customers and prospects. We did extremely well on that, Met we've doubled the amount of customers, met with 3 times more prospects, and I think we want to continue with that trend.

Speaker 1

But I think what you should translate is increased pipeline and we do have an increased pipeline. Now, obviously, just to be able to understand, When you do more meetings and more customers, the pipeline doesn't grow in the same percentage because the sales for usually what they do is the low hanging fruit and then It's an extra effort and lower success rate with the increased engagement, but we definitely see an increased pipeline Across the board and there is very direct correlation between the engagement with customers to the size of the pipeline. So we are basing that on that. We are looking at the trends and the industry growth rates and the economy. I think with the economy, we see some positive signs, but We are not I'm not sure it's the challenge that the market has seen last year is over.

Speaker 1

We've actually seen with some of our competitors that they are being hit by the slowdown that we've seen a year ago. So it's probably not over in that regard. So that balances that from being a more Optimistic outlook. And yet on the same time, let's remember, there's a lot of uncertainties. And if there's one thing I've learned from the last, again, after 30 years of Business, if there's one thing that I learned from the last 3 or 4 years, you can always be more surprised than you've been before.

Speaker 1

And I think we've faced it in 2020 with COVID, we fenced it with 2021 and 2022. But despite COVID, the economy actually did kind of went the opposite direction and did Extremely well. We faced it in 2023 or the end of 2022. But once we've exited the pandemic instead of the economy Flying through the roof when everybody goes back to spending. There was a challenge.

Speaker 1

Now, of course, it's your job to explain it. And I think in retrospect, we can explain all of that. But this time, almost every one of these moves is a surprise. And even now with the situation in Israel shows us that you can always be surprised. I'm proud that in Check Point, we had that Consistent execution even with those trends.

Speaker 1

And what I wish that we will be able to do even better. What I mean, I'm saying it for a long time and I mean it. Rohit, I don't know if there's anything you want to add on the quantification.

Speaker 2

I think you mentioned on On the other thing, I think again, we are looking we looked on the last quarter we mentioned, and it's not only last quarter, but I think the real turnaround came last quarter. It started in Q3. See more demand to our products, for appliances. We see strong demand for our Infinity, to our subscription business. And Again, we feel more optimistic.

Speaker 2

Still, it's a wider range, but we believe that the guidance is good and we hope that Would be in the high end of the range. So it's

Operator

All right. Next up is Joseph Gallo from Jefferies, followed by Jared Polerance of Susquehanna.

Speaker 5

Awesome. Thanks for the question. Gil, congrats on the 31 years of success I'm glad you are staying involved with the company. Guys, great double digit new business growth in 4Q. How should we think about it In calendar 24, and how does that correlate to billings growth in calendar 24?

Speaker 5

What is needed to drive billings growth to double digits and can we expect that in 24.

Speaker 2

I'll answer it, Gil. So I think, again, first of all, again, Q1 was a great quarter in terms of double digit growth in new business. In the end, it also will be transferred into billing. And remind you all that, again, I mentioned it also in our presentation. Well, we see more flexible billing terms.

Speaker 2

I think in the market in general, also our competitors are offering more flexible terms in terms of more flexible billing terms. But in the end, if we're going to see consistent growth in our new business as we've seen in Q4, and we I believe that also in the end, you're going to see it also in the billing. I remind you also the billing duration that again because of the high interest environment, 2023, the billing duration in general was lower than Compared to 2022. So it seems like it's been stabilized. So again, hopefully also we're going to see it also in the next few We're going to see also the growth from the beginning, not only in the new business.

Speaker 2

And of course, it will be translating into revenues. Yes.

Speaker 1

And I want to add that I think that we should use our financial power and the fact that we are cash rich to actually use that in Positive way, not just to win customers and to but also to create more business models that are annuity based, Turn some capital investment business model into annuity ones, both because it can benefit by the way, which is a win win because it benefits the customers that are now getting more and more used to subscription kind of model. And it's good for us because the more you create it, you get More predictable and long lasting business. So I think and that again can have an impact on the Short term billings when you get things forward looking like that. Okay.

Operator

Thank you. All right. Next up is Jared Pomerantz from Susquehanna followed by Tal Liani of BofA.

Speaker 6

Hey, guys. Thanks for taking the question and preemptive congratulations to you, Goh, as you begin the transition to your next role as the Executive Chairman. Maybe just one from me. You guys spent some time in the prepared remarks speaking to the Infinity platform and strength that you're seeing there. Maybe if you could just dive in a bit further, how much of that new business strength that you pointed to would you attribute to Infinity?

Speaker 6

And how are you thinking about The go to market and potential shifts there down the road?

Speaker 1

Rohit, you talked about Well, again,

Speaker 2

in terms of it's not something that we discussed, but I can tell you that Significant part of our new business today is coming from Infinity. It's been every quarter, the portion of the Infinity is higher. It's growing Very fast. We're talking about strong double digit growth in new business booking. We've showed you in the last few quarters, we are showing a Consistent double digit growth in revenues.

Speaker 2

So it's also we see consistent double digit growth in strong double digit growth in new business Related to Infinity, so this so I think in the end, we expect that the portion on the new business that will be related to Infinity will grow Every quarter based on the demand that we see today and the pipeline that we see today for the o Infinity solution.

Operator

All right. Thank you. Next up is Tali Anhui.

Speaker 1

It's still as I want to be clear, it's still about 10% to 20% of our business and revenues, just To be clear, it's not the majority of the business.

Speaker 2

Point of the economy.

Speaker 1

And that means that there is plenty of room for growth as we extend the platform.

Operator

All right. Next up, it's Taliani followed by Shaul Eyal of TD Cowen.

Speaker 7

Hi. Two questions. One is, what are the trends of new customers versus existing customers? Are you able to grow with new customers more than in the past. Can you give us kind of even last few years kind of trends of contribution of new customers?

Speaker 7

And second, when I look at your numbers, the services are flat 2% growth a year, the maintenance piece. The subscription is Growing very consistently, about 15% a year, a little bit of acceleration. The real change, what we're seeing is actually in the Products and licenses that are going down less than before. So the question is, what are the underlying trends in products and licenses? And Can you take us into kind of the numbers beneath the numbers, what how could this look like the next year, the next 2 years And what drives it?

Speaker 7

Thanks.

Speaker 1

So I'd like to try and give you an as first as we said, I mean, it's a first we are getting every product in Check Point with Subscription based is growing very fast. Harmony Email is a good example. It sold a subscription, and it's growing Very, very fast. So that's a good example, but there's few others that are like that and most of them are growing Are growing quite nicely. On top of that, each gateway that we sell, which is a product, comes with a bunch of And they are also growing and there is more services like that that are being consumed, subscription services that are being consumed with every gateway.

Speaker 1

As I mentioned, last year, we had a very tough 3 quarters at the beginning of the years where actually new projects were delayed, postponed And the new business and the product were going down. And despite that, because of the strength of the And the fact that 80% of our business is already annuity, we've been able to meet the quarterly results every single quarter, Which again, don't take it lightly. It's not trivial, but I think that's the strength of what we have. Last quarter, it's changed. In the last quarter, you were still seeing the product revenue go down, but the product orders went up and went up double digit.

Speaker 1

So I think that's a good sign as we head into 2024. The indicators for the Q1 are positive too. Keep in mind that when it's part of an Infinity deal, the revenue recognition or the delivery of the product may take time because in Infinity deals, In a regular deal, you buy a product, you get it. In Infinity deal, you sign up for a free year and you get the product whenever you want. Don't have to get the products on day 1 and actually you have sometimes you even have the freedom to pick the products along the way.

Speaker 1

So some of that growth will take time, but the indicator is very positive. And if that trend will continue, that's a very important The kind of vehicle to drive and push the growth higher into the future.

Speaker 7

New customers, by the way?

Speaker 1

Oh, sorry, new customers. So new customers, we had a very nice jump of new customers, I think, in 2000 and 1 and 2021, sorry. 2021 2022, a big increase in new customers, not enough. It's still not a big enough percentage of our business, but it's still good numbers. And by the way, it's on all sectors.

Speaker 1

We get a lot of small customers, especially from some of our acquisition, And we get 100 of very large customers on our enterprise and very large enterprise business. In 2023, despite the tough economy and despite the fact that for 3 quarters we had a decline in new business, We had it stable. So it's didn't it grew a little bit, but not by a lot. And I hope and for 2024, first, I hope that again, All the efforts that we are making and the investments that we are making are going to bear fruit on the new logos and new customers, And we're putting a lot of emphasis on that as a priority for the company. So we are focusing the sales force So not just grow the existing customers, which is always very important, but also win new logos.

Speaker 1

That's Kind of one of our top 2 or 3 priorities for 2024.

Speaker 2

Thank you.

Operator

All right. Our last question is going to come from Chaul Eyal and away we go.

Speaker 8

Thank you. Good afternoon, everybody. Congrats, Gil. Maybe you can share with us some color on 7 digit transactions, government business and with respect to the incoming CEO. Is there a prerequisite that he or she will be Israeli based or could they also be U.

Speaker 8

S. Based?

Speaker 1

Rohit, do you want to start? Unmute yourself.

Operator

You're muted, Roy.

Speaker 2

Yes, Sheryl, about the 7 digit transaction in the government transactions?

Speaker 8

Kevin, did transaction and also maybe what about the government federal vertical this quarter and for Gil about the incoming CEO?

Speaker 2

We did see. So I would say that when we are looking on our large deals, the mega deals, about the 7 digits of that, we did see a nice growth this quarter compared to last quarter, Actually double digit growth both in number of bids and in dollar value. So I think we did see a very nice trend there also in Q4. It was Part of the positive momentum that we mentioned. As for the government, I think we did well in the government.

Speaker 2

Again, not Still we can grow faster, we can do better there, but I think we have denied decent business also on the government side. And Guy, to your question around the

Speaker 1

As I mentioned, first, I think we're in the beginning of the process, but I will share with you openly My requirements and my preferences. I'd would like to conduct a global search and look for the best possible person She or he around the world. It is very likely that we'd like it to be somebody that will reside in Israel. Our headquarters in Israel, The main hub for operations and of Check Point is in Tel Aviv. So I would like that person to be in Tel Aviv.

Speaker 1

That actually increases the chances that will also be Israeli. But and of course, they will need to travel. I'd like them to Spend a lot of time around the world, but that would be the preference. Again, global search, best person in the world, but most It's likely to will require to reside and be part of the team in the headquarters.

Speaker 8

Congrats.

Operator

All right. Thank you all for joining us today. We appreciate you coming and spending the time with us and we look forward to seeing you throughout the quarter. Thank you.

Speaker 1

Thank you very much, everyone. We appreciate that. Thank you. Bye bye. Bye bye.

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Key Takeaways

  • Founder and CEO Gil Schwed announced his transition to Executive Chairman and the formal CEO succession planning process is underway, expected to take 6–24 months.
  • Check Point reported Q4 revenues of $664 M (+7% y/y) and non-GAAP EPS of $2.57 (up $0.02 versus guidance), while FY23 revenue reached $2.45 B (+4%) and EPS rose 14% to $8.42 (highest since 2011).
  • Subscription revenues grew 15% to $266 M as the Infinity consolidated platform exceeded 10% of total revenues, with new business annualized bookings up double digits across all geos in Q4.
  • Check Point’s AI-powered ThreatCloud now comprises 50+ AI engines blocking 3 B attacks annually and achieved a 99.8% success rate on zero-day tests, outpacing peers in independent evaluations.
  • For 2024, the company forecasts revenues of $2.475–2.625 B (midpoint +6% y/y) and non-GAAP EPS of $8.70–9.30, with Q1 revenue expected at $575–610 M and EPS of $1.95–2.05.
AI Generated. May Contain Errors.
Earnings Conference Call
Check Point Software Technologies Q4 2023
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