Greetings. My name is Kip Meintzer, Global Head of Investor Relations for Check Point Software. I’d like to welcome everyone to the first quarter 2021 financial results video conference. At this time, all participants are in a listen-only mode during the formal presentation, which will be followed by a question-and-answer session.

Joining me remotely today on the call are Gil Shwed, Founder and CEO; along with our CFO and COO, Tal Payne. .

Right, thank you, Kip. Good morning. Good afternoon to everyone joining us on the call today. I’m pleased to begin the review of our first quarter results..

Thank you, Tal, and hello, everyone. I’m pleased to have you. This time, we’re going to have a slightly different format than usual. We are moving along to the 21st century, so instead of just talking about our written comments, I want to share with you a presentation.

And the focus this time won’t be just general comments about the quarter, but we will share a little bit more about our strategy, the Infinity 2021 that Check Point is carrying. There’s a lot of slides here that we share with our customers and partners, so let me jump right in and go ahead with that.

Hope it will work well for the first time on an investor call. So let’s start with forward-looking statement you heard from Kip, so we don’t need to go through that.

So I’ll speak a little bit about -- three, four slides about business highlights, and the main focus here will be about the Infinity strategy, the Check Point – and the Check Point strategy around that. So results, I think you’ve all heard from Tal.

I’m actually quite pleased that we are continuing to execute on our plans, increase the EPS by 9%, increase revenue by 4% and then you’ll see it later in the presentation, and achieved a lot in our strategic areas.

On the financial side, again, the numbers you heard from Tal, $22 million more in revenues, 12% more EPS, and $109 million increase in deferred revenues, so we did increase our installed base and our contract long-term and short-term. A little bit about news from Check Point.

Over the past few years, we started the transformation in our sales force, reenergizing a bit. We have amazing people and we want to reenergize and move the sales force to a much more productive and higher growth mode. Around two years ago, we started with APAC with Sharat.

He’s now with us for almost two years, and actually the last few quarters the results in APAC were amazing, this quarter specifically were very good..

Thank you, Gil. Before we begin the Q&A session, due to time constraints and in consideration of other participants, please limit yourselves to one question and one question only. If you have any difficulties, just type that question into the chat. Today, we’re going to start with Matthew Hedberg with RBC, followed on by Gregg Moskowitz of Mizuho.

Go ahead, Matthew. Mr. Hedberg, unmute yourself. All right. Let’s move on to Gregg Moskowitz from Mizuho..

Hey, thanks, Kip. Hi, everybody. So, Gil, you mentioned that 60% of the Global 2000 have bought Quantum.

But my question is how significantly do you think that you can cross-sell CloudGuard and/or Harmony into your enterprise installed base, because if you can do that, clearly it could drive expansion rates quite a bit higher?.

I think there is opportunities on both sides, and yes, I think we can leverage it. We’ve actually, by the way, divided now some of our installed base into three categories, what we think are developed accounts, which are buying their fair share, but almost all of them can buy some of the new technologies, the Harmony and the CloudGuard.

What we call development accounts, that accounts that purchase Check Point product and our good customers, but there is plenty of potential in all three pillars. And what we call prospects, and these are accounts that are either very small ones or non-accounts at this moment, and we can develop them. I think the potential is there.

I think we need to invest a lot in getting higher in the organization and getting to the CSOs. I think the CSO loves to hear our story. In my experience, almost every CSO likes Check Point and likes to hear about our story.

We need to develop a lot of our own cut on discipline and going to that and not being doing a good job with the people that we already work with at the network level and not expanding. So the potential is there, and by the way, we are seeing more and more in that.

We’ve actually seen very good growth in the Infinity platform when we sell customers not just individual products, but the entire platform. And generally speaking, the Infinity customers are showing a high level of satisfaction.

They like the fact that they can buy more pillars and we’re building more and more Infinity programs to address them and let customers expand..

That’s helpful. Thank you..

Our next question is with Patrick Colville.

Patrick?.

Hey, thank you so much for taking the time to answer my question. So the one I have here is around, I guess, the go-to-market. So you’ve got these three new pillars:Quantum, Harmony and CloudGuard.

Is - yes, so how are the sales team incentivized to sell these products? I mean, Is there a change versus the kind of previous motion of selling them individually? Just kind of any color there would be very grateful..

The fact that we’ve consolidated them around these three pillars give us a lot of ability to manage it better.

Each one of them, I mean, the Harmony and the CloudGuard, they’re what we call an overlay sales force that supports the sales team, that provides the technical expertise, so getting into new technologies becomes a little bit easier for the sales force.

The existing sales force has very clear measurements about what’s their target in each pillar, what we need to do. And I think the main issue is really our own education and our own openness about being out there and being not aggressive, being assertive enough in expanding our presence with existing customers and with new customers.

And I think it’s there, and we are seeing now in some areas, in some sense people have already cracked the code and they’re doing great, and many, many others have the potential to learn how to do that..

And, Patrick, to your question, of course, what Gil said is important, but of course also the commission plan is aligned with these incentives to sell more the new dollars, the new customers, the new cloud and so on. So it’s aligned also with the compensation plan around..

Okay.

So just a clarification, did you say there’s an overlay sales team for -- you said that? Was that correct?.

Yes, for CloudGuard and for Harmony. And again, now that we’ve combined a lot of technologies, it makes things very, very focused. It’s not now an overlay for a specific technology or an expert, but the overlays are organized according to these pillars..

Thanks, Patrick. Our next question is with Jonathan Ho, followed by Fatima Boolani and Keith Weiss. Go Jonathan..

Hi, good morning. I just wanted to get a sense of what you think maybe Jeff can bring to the Americas market that could reaccelerate the growth there? And what changes did Torsten make in Europe that maybe had a similar impact in EMEA in the past couple of quarters? Thank you..

First, I would like to share all our tactics and secrets inside, so I’ll briefly touch on that. I think Jeff brings -- I mean, Jeff is a very good fit because he’s more than just leading sales forces. He dealt with many, many other professions.

And I would say, he’s more -- a little bit more sophisticated than the typical sales lead because he comes from a different background. He came from VMware where he built the cloud overlay and the cloud business.

So I think if we look to focus on the cloud, he definitely brings the expertise and the understanding about penetrating new markets, understanding the cloud and having all the contacts and the relationship, whether it’s the cloud customers or the cloud partners, so I think that has a huge value to the – to this team. And a little bit about Torsten.

As I said, I think we are very enthusiastic about what we see in Europe, but I think one and a half quarters is still too early to judge, so I don’t want to be carried away. But I think Torsten gave us a lot of good insight for somebody that comes from the outside. A lot of it is the focus that our people should pay to focus on new business.

A lot of times, a big, huge part of our business is renewal business, renewal of support contracts, renewal of the advanced security subscription contract, and the sales people are doing a great job serving their customers, which is obviously very, very important.

I think Torsten brought a lot of default that it’s really, really important to, of course, keep your customers happy, but focus about with new business.

And now the way we look at that in many cases for the sales guys, how many -- it’s not just what’s your total pipeline and your total bill size is what’s the -- how many new opportunities do you have.

New, by the way, is with existing customers and with new customers equally, but still new is not just renewing the old contract or expanding it by a little bit, but about providing more security and doing more for the customer and winning new projects. I think that’s the big focus that we have right now.

And I think when people start to focus on that and internalize that, they’re focused on the right thing because if we take good care of the customers, the renewals will happen. It’s not -- the focus should be on how do we expand..

Thank you, Jonathan. Our next question is from Fatima Boolani, followed by Keith Weiss and Saket Kalia. .

Good morning. Thank you for taking the questions. Tal, this one’s for you. I want to focus on the deferred revenue specifically, and just a two-part question.

Can you talk to us about some of the drivers and factors behind the acceleration and the long-term mix this quarter, and to the extent there was anything unique or one-time in nature? And also, maybe bigger picture in terms of the deferred revenue mix, especially as you see the Infinity business build very quickly, can you share with us the mix of the deferred revenue today between subscription revenue or blade revenue versus traditional maintenance? That detail would be very helpful.

Thank you..

Well the first one is easy - if long term increases because we get more long term contracts, then you can invoice, so it really depends--and that’s why always when people ask we why we don’t provide billing, I say because of that, you can’t really predict that, so it really depends many times on customer budgets.

Sometimes they want to pay the whole three years in advance if they make a long term contract, so you invoice for it and then you will see it in deferred revenues.

Sometimes it’s a three-year contract but paid annually, so you will see only the first year in the short term, which means that this quarter specifically you had some that also wanted to pay in advance, and therefore you see it in the long term because we have to invoice, so you see it in the long term.

It doesn’t mean that the total is different, so I think when you look at the big picture, it’s still reflecting it’s in line with what you expect. So some quarters it can be affected by a large deal. There wasn’t a huge deal here, it was a few deals that were healthy and good, and also being invoiced - that’s all.

Your second question about the mix, actually in the annual report we provide the split between the product support and subscription, the deferred revenues, so in general I will say I don’t expect a major change this quarter, it’s very similar.

On the bigger picture, I would say we see subscription growing of course faster, product is quite small because typically a majority of it is recognized in the same quarter except for things that depend on other items, and therefore you wait, but the majority of it is the subscription.

The support is typically in line with what you see in the revenues, so the acceleration that you see is typically in the subscription..

Very helpful, thank you Tal. .

Thanks Fatima. Our next question is coming from Keith Weiss, followed by Saket Kalia and Rob Owens..

Excellent, thank you guys for taking the question. I wanted to talk about the breadth of the product portfolio. You guys have a really nice breadth of solutions, and some of the numbers being presented at that CloudGuard - 50%-plus AR growth is very striking.

Any chance we could get a breakout of the relative sizing of these businesses, of Quantum, Harmony versus CloudGuard, of kind of how they fit within the overall portfolio, number one? Number two, maybe you could talk a little bit about the up-sell potential into the base.

How far into the base have we gotten with some of the newer stuff, like CloudGuard and Harmony, and what’s the opportunity on a go-forward basis to get existing customers to take on more of this portfolio? Thank you..

I’ll start from the second part, and Tal maybe will expand a little bit more on the financial side. I think the potential is definitely there. I think customers love it and there’s a lot of value. It’s not just the value of being a customer of one company, it’s the fact that things connect.

I think that’s what we have to sometimes educate the customers about the fact that having different silos in cyber security usually means systems that are not just more complicated but systems that don’t provide a high enough level of security.

Now if I’ve got a system that analyzes that you’ve got an infected file, the job of security now is not just to block that file--by the way, pretty much all of our competitors, if you receive an infected file by email, which is the number one vector, you will receive the file and later on you’ll find that you’ve been infected.

Our job is block it, which we do, which is unique, and then make sure that this file doesn’t grow and doesn’t exist on any of the other vectors, so you can’t download it from the web. If it exists on any end point, we recognize that, because we found it and we can deal with it everywhere. So yes, the potential is there to sell it to more customers.

We do have several thousand, I’ve quoted over 4,000 customers for example for CloudGuard, and most of these have been Quantum customers before.

so the entrance sometimes is from also the other direction, that we get new customers with CloudGuard or Harmony and then they adopt our Quantum family, but most of it is our installed base that’s being opened up to learn more about the Check Point vision here.

Numbers - Tal, do you want to give some color on that?.

I think I will say first, I want to refresh your dress code. I think there’s a change from people working at home.

For Keith, it’s no good for you!.

I have the Gil Shwed t-shirt on, though. It’s the official black t-shirt of Check Point conference calls. .

Yes, okay. I will say the following - the potential is huge, because Gil, I don’t want to provide additional information to what you show on the slide, but when Gil was referring to out of the Global 2000 in the cloud, I think you said one out of five, so it shows one out of five already purchased from us that solution.

There’s a huge potential because on the one hand, it’s very early days both in Harmony and the cloud. I will even say in Quantum, if you look at the Sandblast, which has advanced threat protection, even that didn’t pass the 50%, so the potential to up-sell is massive in all of these pillars, both in the Quantum, in the Cloud and in the Harmony.

All of them need it, and Infinity gives them, I’ll say, the best tools to do it. How quick it will happen? It’s really up to us and the execution of the field, so the potential is very large there..

Thank you so much, guys..

Thank you, Grizzly Adams. Our next caller is Saket Kalia, followed by Rob Owens and Gray Powell..

Okay, great.

Can you hear me okay, Kip?.

Yes, we can..

Okay, excellent. All right, thanks folks for taking my question here. I’ll just keep it to one housekeeping question. Gil or Tal, thanks for the Q2 guide.

Apologies if I missed it, but did we mention anything about the full year guide, and are there any assumptions about the full year that have changed from the last time that you provided that?.

As far as I’m concerned no, it stays the same. If you remember when we talked in the beginning of the year about the margin, that we said about the fact that we expect the world to come out of COVID, in Q1 it’s still so it was slightly better as a result of that but nothing dramatic, because we already embedded in the plan.

When you think year-over-year from the next quarter, last year is fully under COVID, therefore in the next quarter we expect to be in line with the margins that we did indicate, which is we’re returning to out of COVID over time, while the comparable has a full effect of COVID saving in the expenses, so we’re pretty much in line, and you can see those in our guidance for next quarter.

.

Got it. Very helpful, Tal. Thanks..

Thanks Saket. Our next caller is Rob Owens, followed by Gray Powell and Ben Bollin..

Thanks Kip, and good afternoon guys.

In and around Infinity 2021, just wanted to get your thoughts around marketing spend and whether you would lean into this with incremental programs, MDF or anything the like, and then Tal, you kind of answered it before, but relative to a reopening, how are you thinking about spend and timing?.

So first, we are trying to be as aggressive as we can in marketing. We’re also trying to be smart, because the most important thing is to touch customers and get their attention, not just to get--. Now, there is a lot of nice achievement in terms of our marketing, for example you’ve seen the reach of our virtual conferences.

We had a great increase in participants, and that’s again after--you remember, last Q2 or Q3, we were all locked at home, people didn’t have--I mean, the only way to connect to the world was participate in some conferences - that’s past.

Now, when we get people to attend the conference, that means that they are really interested and it’s important, and we love the fact that more customers are now participating in our virtual CPX, for example.

There is a lot of other achievements that we haven’t--but we will continue to maintain C-level followers, which is by the way--again, it’s a great way to create community that we need to expand, and it’s going very well in getting to C-levels.

We’ve really, really improved our--it’s actually not just we improved, it’s the level of interest that customers have in our technology. If you go to Google, we are now on the first or even position zero, in many cases, on most of the keywords that you search. Search for cloud security, we’re number one on the search.

Search for cyber attacks, we are also, I think--I believe it’s changing all the time, position zero on cyber attacks. Zero is even before the first search, it’s explanation of the term, so we are getting the mind share. Again, look at many of these cyber attacks - cloud security, network security, end point security.

We are number one or number zero in Google in almost all these Google searches, so I think that drives more traffic to our site. I think we are making a lot of progress on almost everything. The SEO part, which I must say, by the way, I’m very proud of, because that means that the Quantum we provide to the world is being recognized..

And maybe I will just add that I think the main--remember, a majority of our expenses are really in the headcount or in our people. There, we’d like to see an accelerated growth in the headcount. We want more people, so we’re working on that. To your question, Rob, more people, more expenses.

It’s part of our plan and guide, but that’s what we’re aiming for, that’s the main one.

More marketing - of course, if it’s good, we would love to, but the main focus is headcount-headcount-headcount now, and also when you relate to the return to normal, T&E is very hard to know how it will return, because I think many people realize they can be very productive also without the flight.

So much will return, 20%, 50%, 70%, it’s a bit early to say. My intuition is it won’t grow all the way back to 100%. Will it be 50 or 60 or 70? I really don’t know. We would need to go out, like the rest of the world, and see what is needed and what’s best to serve our customers and employees. .

All right, thank you..

Thanks Rob. Our next question is coming from Gray Powell, followed by Ben Bollin and Brian Essex..

Hey great, thanks.

Can you hear me okay?.

Yes..

Cool.

Yes, so I guess how should we think about the mix of product revenue and subscription trends within the context of guidance this year? I think you hit on this in the prepared remarks, but is there anything going on, like a shift towards Infinity or bundled offerings, that could impact that mix and cause product revenue to be recognized more ratably?.

So I’d say it’s really in line with what I said in the script. It’s a great question. It’s something that we’re dealing with for the last few years. As the rest of the world, when more and more people are moving into subscription models, I think, Infinity is full subscription although it provides product and support and subscription in it.

It’s full subscription in terms of the pricing model. The same with Harmony, the same with Cloud. If somebody buys just the appliance, then it’s a product, so of course the product line for the last few years is under pressure, it’s not surprising. It can have shifts.

You can see some quarters it’s better than the others, but in general we always look at the total. As I keep saying, look at the total growth. Subscription takes longer to get into the P&L, but it’s over time you see it also in the profit and loss report. You see the subscription picked up this quarter, which is nice to see.

I think it was 10%, moving up to 12%. We also had a pick-up with support coming a lot from the professional service, which more customers also need as they implement more robust solutions.

My intuition, I can’t guarantee it, but I first recommend look at the total picture and not only on the product spend alone, because product can be plus-2% or minus-3% or--anyway, depends how bundled it is. They more bundled they want, the more pressure it will put on the product line..

Understood. Okay, thank you very much..

Thanks Gray. Our next question is coming from Ben Bollin, followed by Brian Essex and Sterling Auty, which will most likely be our last question for the day. Go ahead, Ben..

Good morning, good afternoon. Thanks for taking the question. It’s fairly specific, but I’m interested if you’ve seen or you’re thinking about component availability concerns for your appliances. Did you have free availability throughout the quarter, or are you anticipating any tightness as you look forward? That’s it..

So actually, since COVID started you have that, meaning every quarter it’s something else that has an allocation issue. We dealt with all of them very well. Also, the recent one, we’re dealing very well. I hope it won’t develop to be bigger, but we are so far in line with our planning and.

By the way, there can be some increase in pricing, but nothing that will be very apparent to you. For some components, prices are moving up as a result of allocation. It’s all around the markets..

All right, thanks Ben. Our next question is coming from Brian Essex. Hey Brian..

Hey Kip, thank you. Gil, just a first question for you, and then I have a follow-up. You mentioned that you wanted to move your sales force into a more proactive high growth mode.

If you take a step back, what are your expectations for high growth mode, so to speak, and what might that translate to for revenue growth as you consider where some of the core maintenance and potential appliance revenue may track over the next few years, versus some of the newer initiatives that you have driving subscription growth? If you had to set a range, like I would like Check Point to be this level of growth, that’s my goal, how would you frame that?.

So first, the market will change over the next few years, and we want to grow at least with the industry and maybe faster. But this year, I’ll share with you some internal--I hope Tal won’t be mad at me, but we have a very clear goal for our sales people. They need to grow the new business that they generate by 20% - that’s the overarching target.

Again, there may be a few variances depending on the sales person, but that’s the overall goal for every sales person. Now again, it depends on the mix, and over the years if the new business is growing by 20%, it will follow the rest--the subscription will eventually follow that.

And the new business, by the way, is everything - it includes the new subscription, new support, new products, new everything. But the focus is grow the new business by 20% for the entire sales force, and I think--I don’t know what will be the target for 2022 or 2023, that depends on markets, but in the case of this year, that’s the target..

Great, that’s super helpful. Maybe just a follow-up, you obviously have some fantastic domain expertise around threat intelligence and research, and we’re seeing some of your peers kind of work towards maybe establishing a practice around that, monetizing that.

How do you think about potentially enhancing the monetization of that threat intelligence and domain expertise in the future?.

First, it’s an excellent point and I think we’ve started thinking about it long ago.

We actually, by the way, did a few projects or are doing a few projects on that level which are kind of more boutique projects, like say I’ll give you an example, looking at the company app store when they have applications and analyzing all these applications with our dedicated tools.

There’s actually several projects which we are doing in that domain. I can’t reveal to whom. We have a very good incident response team that exists for many, many years, and again has a lot of work these days with all the new supply chain attacks. I think we have amazing tools to provide that.

Still, most of our research today is around finding the things that are common to the world. You see we have almost 100 publications from our incident response team over the last year.

We found some unbelievable vulnerabilities, like last summer there was, and we found since then many more, but one that got a 10 out of 10 score was the Microsoft Exchange--or not Exchange, sorry, the active directory one that showed how you can get into the DNS server, the WinDNS server and get into active directory.

I think this is an interesting area for us, but I think keeping that not just as for higher but keeping the research, the openness is also very important aspect which we intend to keep..

Helpful, thank you..

Thanks Brian. Our last question is going to come from Sterling Auty from JP Morgan. Hey Sterling..

Hey guys, thanks. Appreciate it. The changes that are taking place here in North America, you mentioned Mr. Waters’ first day, but I think there may have been one or two other changes as well.

I’m just wondering how much disruption did that cause to the quarter, looking at the results in the Americas, and how do you anticipate trying to minimize any disruption as you go through kind of this sales transition in North America?.

First, I think overall, if I just say-again, I don’t want to provide too much inside data, but I think in general what we’ve seen is with the level of attrition in Check Point in general, it’s quite stable.

There was a decline in attrition second and third quarter last year due to corona, but the market pretty much got back to the old mode and the usual mode.

I think we have some people that we don’t like to lose that are excellent people, but remember our industry is very hot, companies are raising tons of money, and many people are looking for the opportunity whether it’s in another large company, and in many cases in some hot start-up when they have a dream about being part of the next unicorn.

Some of it is unwanted, undesired, and some of it is desired because there are people that--again, we have a lot of very, very good people, so I don’t easily let go anyone. But some people, it is time to refresh and take a new look, a new view of the world, even for people that contributed very well to Check Point.

So I think overall, we have a good level of change, and I think initially I will expect more change because we need that change, but long term we definitely want to keep our good people, and I think we do bring some good new leadership that will bring new ways of managing and thinking and so on..

Thank you. .

Thank you guys. Thank you for all of you joining us today. Later we’ll have the presentation posted on the website for any of you that would like to download it and review it further. Other than that, we look forward to seeing you during the quarter at the conferences, and look forward to next quarter’s earnings call. Thank you, guys..

Yes, and I’d appreciate if you have any feedback on the presentation, we will appreciate to get it and to get better..

On the format, on the call, we’d love to hear your feedback as well. Thank you..

Thank you. Bye bye..

Have a nice day. .