What Check Point Software Technologies (CHKP) Said on Its Q3 Earnings Call

Key Points

• Q3 revenue fell 1% year over year to $670 million, pressured by weaker firewall appliance refresh activity. Management expects product revenue to improve sequentially beginning in Q4, though the recovery may be slower than previously expected.
• Subscription revenue grew 11% to $339 million, representing 51% of total revenue, with strong demand for email security, AI security and continuous threat exposure management. The company expects subscription revenue to exceed $1.5 billion in 2027.
• Check Point maintained strong profitability and cash generation, reporting a 37.4% non-GAAP operating margin and $258 million of adjusted free cash flow, while repurchasing $325 million of shares. Q4 guidance calls for revenue of $720 million to $770 million and non-GAAP EPS of $2.71 to $2.83.

Check Point Software Technologies NASDAQ: CHKP said third-quarter revenue declined 1% year over year to $670 million, which was near the midpoint of its guidance, as lower firewall appliance refresh activity weighed on product, maintenance and services revenue.

Chief Executive Officer Nadav Zafrir said the company believes the third quarter marked the low point for product revenue and expects sequential improvement beginning in the fourth quarter. However, he cautioned that the recovery is expected to be more gradual than previously anticipated.

“The go-to-market changes that we've been talking about in the beginning of the year are now embedded,” Zafrir said, adding that Check Point is making progress on expanding sales capacity. The company said it has added dozens of salespeople in recent months and has additional hires scheduled to join in the coming months.

Subscription revenue continues to grow

Subscription revenue increased 11% year over year to $339 million and represented 51% of total revenue. CFO Roei Golan said the growth was driven by email security, AI security and continuous threat exposure management, or CTEM. The annual recurring revenue from those growth technologies rose more than 38% year over year, while their calculated billings increased more than 47% during the quarter.

Check Point’s email security ARR surpassed $200 million in the third quarter, according to management. Zafrir said the company’s workforce security offerings, led by email security, remain a major growth engine as AI expands both phishing risks and the use of AI assistants in workplace processes.

Golan said subscription growth is expected to slow modestly in the fourth quarter because lower firewall refresh activity in the third quarter and early fourth quarter reduced associated firewall subscription sales. Still, he said the company expects subscription growth to accelerate in the first half of 2027, supported by demand for AI, CTEM and email security products as well as recently announced firewall pricing changes.

The company expects annual subscription revenue to exceed $1.5 billion in 2027, Golan said.

Profitability, cash flow and capital returns

Check Point reported non-GAAP operating income of $251 million, representing a 37.4% operating margin. Non-GAAP net income was $254 million, or $2.49 per diluted share, while GAAP net income was $185 million, or $1.82 per share.

Adjusted free cash flow totaled $258 million, above the midpoint of the company’s guidance range. Adjusted free cash flow for the trailing 12 months was $1.179 billion.

The company ended the quarter with deferred revenue of $1.992 billion, up 6% year over year, and remaining performance obligations of $2.513 billion, up 5%. Calculated billings declined 5%, though Golan noted that the prior-year period benefited from an unusually large contribution from deal slippages and early renewals.

Check Point repurchased 2.5 million shares for $325 million during the quarter at an average price of $132 per share. Over the past 12 months, it repurchased 9 million shares for about $1.4 billion. Golan said the company, which he said has about $4 billion in cash, is maintaining its existing buyback pace while continuing to evaluate capital allocation with its board.

Firewall demand and AI-focused strategy

Management attributed the revenue decline chiefly to reduced firewall appliance refresh projects. The lower refresh activity also reduced attached support revenue and professional services revenue. Golan said roughly half of the sequential decline in services came from professional services and half came from maintenance revenue.

Check Point has introduced price increases of between 12% and 20% on firewall products, including related support and subscription offerings, effective Oct. 4. Golan said full realization could add up to three percentage points to total revenue growth, although the company historically has captured somewhat less than half of the potential benefit.

The company said higher memory costs affected gross margin, which was 87% in the quarter, and could continue to pressure results. Golan also cited foreign-exchange headwinds from the weaker U.S. dollar against the Israeli shekel, estimating an approximately $30 million impact on operating expenses year to date. At current exchange rates, he said the incremental 2027 expense impact could reach up to $50 million.

Zafrir said Check Point is positioning its network security products for AI data centers, sovereign deployments and increased encrypted east-west traffic. The company recently launched an AI Network Firewall, an agentic security management platform and a next-generation Maestro Hyperscale Orchestrator.

He said the AI Network Firewall is a separate subscription package and an upsell opportunity rather than part of the firewall price increase. Management also pointed to a significant eight-figure deal with a Fortune 200 energy company involving network modernization and exposure management, as well as a seven-figure agreement with a global electronics manufacturer to secure AI usage for more than 80,000 employees.

Fourth-quarter and full-year outlook

For the fourth quarter, Check Point forecast:

• Revenue of $720 million to $770 million.
• Subscription revenue of $351 million to $362 million.
• Non-GAAP EPS of $2.71 to $2.83.
• Adjusted free cash flow of $260 million to $290 million.

For the full year, the company projected total revenue of $2.732 billion to $2.782 billion, subscription revenue of $1.345 billion to $1.356 billion, non-GAAP EPS of $10.25 to $10.37, and adjusted free cash flow of $1.136 billion to $1.166 billion.

Zafrir said Check Point plans to provide more detail on its longer-term strategy at its Capital Markets Day during CPX in Las Vegas on Feb. 10.

About Check Point Software Technologies (NASDAQ:CHKP)

Check Point Software Technologies Ltd. is a cybersecurity company that develops products and services designed to protect organizations, governments and consumers from cyber threats. Its offerings help secure networks, cloud environments, endpoints, mobile devices, data and remote access, with capabilities including threat prevention, firewall protection, intrusion prevention, email security and security management.

The company organizes its portfolio under platforms that include Quantum for network security, CloudGuard for cloud security and Harmony for user, endpoint and remote-access protection.

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