Max Gample: All right, good stuff.
Gabrielle Borges: Hey, thanks, everyone, for joining us. We really appreciate you being here with us. I'm Gabrielle Borges. My colleague, Max Gample, on stage with me. We cover security here at Goldman. Delighted to have on stage with us Kip Meitzer, Investor Relations.
Kip Meitzer: I've got to do the safe harbor, so remember that.
Gabrielle Borges: Please, safe harbor.
Kip Meitzer: Let's go. Oh, yeah. So, folks, could you close that door, please? So, folks, obviously, with any presentation, there can be forward-looking statements. And with any forward-looking statements, there are lots of risks and uncertainties. If you would like to have some good bedtime reading material, just check out our latest 20F for a comprehensive view of all those risks and uncertainties. And as with all forward-looking statements, we have no duty to update except for where required by law. Over to you, Gabriella.
Gabrielle Borges: So I think the place to start here is at the top of the house with Nadav.
Kip Meitzer: Yes.
Gabrielle Borges: Because this time last year, and actually consistently over the last year, there's been so much excitement and energy at Check Point around what Nadav can do with his focus on enterprise selling and executive selling in particular. So maybe I'll start broadly. How's it going?
Kip Meitzer: Well, I think it's been going well this year so far. I think Nadav has made an impression externally and internally. And I think you're seeing the fruits of that. I think the progress we've made so far, you know, you have a little shortfall in billings that everybody was affected by that exogenous liberation day. But, hey, I think we've been very clear that all 18 million shifted to the third quarter, and we're pretty confident in what's to come from the second half of the year. We talked about a very strong pipe and such. But as far as what he's been doing inside the company, level set the management. Now he has everybody reporting directly to him. We've got the whole go-to-market team to where they're interacting. So it's not a pyramid. It's very flat. And he's very aware of everything that's going on. So it's not micromanaged, but give me the information, right? So it's not playing telephone. And I think that it's being echoed by what you hear from the channel, what you hear from customers, what you hear internally from employees. It's an empowerment that's taking place inside the company, more of an ask for forgiveness, not for permission type of structure. And I think it takes a while for that to make its way through, but it's definitely having its effects.
Gabrielle Borges: One of the things I know Nadav is particularly good at is spending time with C-level executives, with board of directors folks, and talking about strategy. So leveling up checkpoints relationship as more of a strategic security partnership. How do you track and measure that? And I'd love to hear how is Nadav spending time on the road with that cohort of executives?
Kip Meitzer: Well, I think, number one, he's meeting with as many CISOs and executive team members that he can from customers and potential customers and that's to get a better understanding of what their expectations are and also allows him to communicate where we're going. I think the biggest difference where he's made the immediate effect is on the channel. The channel, the way we've embraced the channel and the way they've embraced us back and You know, it's never perfect, but I think it's a far cry from where it used to be, and it's headed in a direction that's going to be even better. With the effects that our competitors, by disintermediating the channel, it makes our job that much easier and his job that much easier. And I think it's reflected in what we're seeing in the pipeline and beyond. We think those relationships will continue to nurture and expand over time.
Gabrielle Borges: I'd love to hear more specifics on this progress with the channel.
Kip Meitzer: What are you tracking?
Gabrielle Borges: Is it simply paying more for commissions, tight to new business, maybe be a little more granular here?
Kip Meitzer: I think if you look at it, the things we've done around education, certification, things like that, but we've made, where we were traditionally very difficult with the channel, All that has been erased and I think when you look at the aggressiveness, the demand generation, all of the investments were made there and that will continue to make. We just have a new CMO that started a couple days ago. So hopefully we're going to get a little more momentum in that area, especially on the demand generation. But I think overall, it's programs to displace competitors. I think those are very effective, especially when you start looking from a total cost of ownership, the efficacy of the solution we deliver, all the key points that people really need to focus on. I mean, things like if you look at Microsoft SharePoint server on-prem hack that you encountered, what was it, three weeks ago. We were the only product that natively protected. So if you're an organization that had Checkpoint, you didn't have to worry. The other guys, you know, and you have things like sales loss that underscore the difference between efficacy and a little bit of sloppiness. So I think these are the things that will drive us further and further and further.
Gabrielle Borges: So hand-in-hand with the investment discussion comes a discussion on margins.
Kip Meitzer: Oh, yes, your favorite. I think that's why you downgraded me, if I recall right.
Gabrielle Borges: So it's really interesting because we had a view that he needed to invest more to grow, and then last quarter, Nadav said that he was willing to trade off a few points of margin for growth. So maybe reconcile these two comments for us.
Kip Meitzer: We've thought about 40% of growth. Let's start here. So margin should go up towards the end of the year. It's a seasonal thing. It's our larger quarters, et cetera. However... Next year, because of FX, there's about $60 million added because of the weakening dollar against the shekel and other currencies. So that'll impact 1% to 2%, depending on where revenue is. As far as the trading margin for growth, it goes back to what Nadav said at our analyst track. Everything we do is responsible. And it's with the goal of growing faster. And so we see a path to that double digits, to that sustainable double digits. And so as we go along that, obviously there's going to be investment that's made. But it's not going to be reckless. It's not like you're going to end up at 30% tomorrow. It's investment that will be respectful and sustainable. And so when you look at that, Obviously, it's not something we're ready to talk about today. We're just in the middle of the AOP. But you can guarantee we'll be talking about it at fourth quarter earnings and at any analyst day that we might have. Nonetheless, I hear mostly from investors that, yeah, please invest. We want to see you at double digits. We want to see you beyond that. And so the nice thing about investing is you know, revenue accelerates, it can drag margin up, right? Or you can continue to keep it at that level. But that's the great thing about growth. And hopefully we'll grow faster this year than we did last year. And hopefully next year we'll do the same.
Gabrielle Borges: So I agree. It's hard to think of a scenario where we're talking about 30% margins. But tell us about this 40% scenario, meaning I've historically thought about 40% as being the floor. What are the scenarios where that's not the case?
Kip Meitzer: Well, I think the impact from FX. So if you want to keep, you know, constant currency, you know, you throw out the 1 to 2, then you end up at 40 with the 1 to 2, right, the 60%.
Gabrielle Borges: I got you, yeah.
Kip Meitzer: So if you want to keep that in mind, you know, because that can always be a benefit as things turn, right?
Max Gample: Yeah.
Kip Meitzer: They don't generally, you know, traditionally go just one way for a long period of time. I think the last 10 they were there, they were there for about, 18 months, and then they reverted. That being said, you can't predict FX, so we'll just have to wait and see. But nonetheless, look at it as constant currency and then take whatever investment we take from there. Does that mean you could go lower? Yes, but it also depends on where revenue is. And that's why it's kind of like a moot conversation, right? Because where we come out in the beginning of the year with what we give direction for the year That's where it's all going to be dependent.
Gabrielle Borges: Yeah. And you already talked about investment going into the channel. Are there a couple of other areas that we should think about as prioritization, maybe from a product standpoint as well?
Kip Meitzer: Well, definitely from an AI perspective, we had a huge hiring, 500 people that we were looking to add through some programs that we had that started at the beginning of the year based around AI. A lot of that headcount was also directed towards SASE. So a lot of the feature parity that we'll deliver in the fourth quarter already have delivered more or less has been a result of that doubling down on the head count and driving the maturity of the SASE product. We're still a ways to go on the scale. We're still in the tens of thousands. We want to get up to the higher levels, say 100,000 and beyond, but right now most of your enterprises that you would address probably don't even have as many people as we can address today but we're having a great deal of success I think we said it grew it doubled a year over year so far if I recall right I think Roy said that on another call but we're going the right direction and you know it's going to be a driver for growth next year along with the workspace
Gabrielle Borges: I'm going to ask one more here before turning it over to Max. AI is a very broad categorization. Can you give us any more specifics on what types of AI hiring you're doing?
Kip Meitzer: So one way to think about it is we have our AI Innovation Centers that's now being led by our CTO, Jonathan Zanger. And there's a couple little interviews with him out there on Wall Street Journal and such. And he kind of outlines everything. Whatever you think about AI today, it isn't going to be the same in five years. And so, yeah, five months, five days maybe. And so I would say that when you look across the board, obviously we already have our co-pilot, and we continue to improve it as part of our platform. I think of it as the new command line interface. I mean, you're not using a WYSIWYG anymore, right? You're actually using a prompt to get everything done. I think it's very effective, very efficient. And as we see more adoption of it, that'll be great. But we already have, I mean, a testament to the AI utilization that we have is our efficacy, right? I mean, we have over 60 plus AI engines that are part of Threat Cloud. And you don't have that efficacy that we have, the prevention, the prediction, all of that without that AI. That, I think, first and foremost, is the biggest part that we have today. What comes tomorrow, it's going to come in many different forms, right? There's going to be stuff around run time, around agentic attacks, you name it.
spk00: Kip, you mentioned the slip deals in the second quarter, but also that you have high confidence of reaching the...
Kip Meitzer: Sorry, do that through the beginning one more time.
spk00: I did the slipped deals in the second quarter. Yes, you mentioned those, but also that you have high confidence slipped in German. I was watching.
Kip Meitzer: Yes.
spk00: So, but you have high confidence in reaching the because we already signed the guy, we already signed the 18 million in the third quarter.
Kip Meitzer: So you're talking the guide for the year or the year for the full year? For the whole year, look, we have a strong pipe. We've given our guidance. But Roy, we've expressed quite a bit that we believe we can finish out, barring any exogenous stuff that we should be able to finish at the higher end. And I think a lot of people were wondering why we didn't narrow guidance, I think, after the second quarter. And it's not something we normally do. We usually wait till the third quarter. But, yeah, we'll see.
spk00: Any other color on the macro environment? Do you generally see things improving, stable?
Kip Meitzer: I mean, look, we haven't seen anything deteriorate by any means. In fact, I would maybe argue there's signs that it's gone the other way, the linearity this quarter on the pipeline and closing deals. On this quarter, 3Q. You know, the first two months of the quarter, normally it's much less. And that's excluding the $18 million. So better linearity. Again, you still have to close the quarter, right? And, you know, you still have most of the quarter happening. You know, 50% of the quarter is still going to happen in the third month of the quarter. And then a lot in the last week, the last day. But we have pretty high confidence. And... from a macro standpoint, we haven't seen anything yet. But again, last quarter, you know, I just throw that caution out there. I don't expect anything because we've already had our liberation day already. But, you know, there could always be some other exogenous shock, but it doesn't look like there will be one. And then for the second half of the year, I would just say, you know, we don't give guidance, you know, in this period on the rest of the year, but We've continually said that the pipe for the second half of the year is very strong.
spk00: And new customer ads is also a key focus. What's working with new logos and any nuance you can add on what's happening in the competitive environment?
Kip Meitzer: Well, I think first, remember how we determine a new logo, right? A new logo is somebody that doesn't have an invoice for three years and is an actual new logo. And when you have as many customers as we do, new logos are a little harder to come from. But if you count new logos as a new business unit or anything you run into, like some of our competitors do, I'm sure we could have those kind of numbers too. But we have been having success with new logos. And I think a lot of it goes to the fact that we have the highest efficacy in the market and security matters. And I think our customers and people that encounter us in the process realize that we're their biggest advocate to keep them safe. We're not just trying to extend a contract after you get rid of another vendor and shove a bunch of money in our pocket. We're actually trying to make you safe and get reimbursed for it at the same time. So it's definitely, we look at our customers as a partnership.
spk00: We already talked about go-to-market a little bit, but I wanted to ask you about APAC. Specifically, that region grew 15% in the quarter, much faster than some of the other regions. What's driving that strength, and how sustainable is this?
Kip Meitzer: That's a good question. You know, seasonally, I think sometimes Asia-Pac, you know, does very well in the second quarter as opposed to other quarters, if I recall from the past. But there's nothing – I think, you know, we have – probably between SASE and the new product offerings we have there. We also have some new leadership from a sales point there that's been on board for, I think, over a year now. Nadav spent a lot of time in Asia. We had a CPX in Thailand. We've had other events over there. So I think there's been quite a bit of good success there from a channel perspective also.
Gabrielle Borges: I'm going to bring it back to more of a product-focused discussion.
Kip Meitzer: Oh, this double team stuff is just so much fun.
Gabrielle Borges: Good cop, bad cop. Yeah. So I really love how Nadav has taken CheckPoint's core competency and positioned it as hybrid mesh. So my question for you is, where does identity fit in hybrid mesh? And to the extent you have opinions on the Palo Alto Cybroc deal, we'd love to hear them.
Kip Meitzer: Oh, no, we don't want to do that. We don't want to talk about competitors.
Gabrielle Borges: Hence the very generic, where does identity fit?
Kip Meitzer: Yeah, I would just say, from an identity perspective, we have our open garden approach. And we believe, you know my view on identity. I've always believed it's been Switzerland. It's something that needs to be independent. and people who should be able to utilize freely. So Okta, SailPoint, all these guys. I don't believe it actually belongs. Now, my management could change their mind. This is my opinion. But as far as identity, we've always taken, along with the rest of our, you know, what do you want to call it, our open garden approach where we have our core competencies and areas that we will play, but we will have an interoperability with everybody. And so... I think when you take something and you shut it down to one company, I think there's a lot of risks that are inherent with that. Not only the security, because you kind of adopt the culture of one company or the other, but you also have to deal with the integration aspect. And there's lots of risk, especially with large acquisitions. We tend to do them smaller so we can tightly integrate them into... what we do. That's why we've always made the type of acquisitions we do. It doesn't mean we wouldn't do big ones, but we believe you get it right when you can either build it internally or do it with the help of acquisitions, not try to take something that's already established and then try and remake it in your, or how shall we say it, convoluted way of pulling it together. They rarely work.
Gabrielle Borges: I also want to talk a little bit more about SASE because we talked just a few minutes ago about the incremental investments Checkpoint is making in SASE. What do you think is driving your differentiation in SASE today? And what are the next technical milestones that you need to hit to level up?
Kip Meitzer: So I think the key part of it is, one, it's our efficacy. Two, it's ease of use. ease of installation, and most of all, the up to 10x speed faster than our competitors. And that's because of the way that the product is designed, right? Encryption on the device to go straight out to the internet, go over the public cloud where necessary, go over the private cloud to your own data center, et cetera, where it's necessary. So the user... doesn't get frustrated with that latency that occurs in other ways. So I think that's what's really beautiful about it, but also the integration where now there's one policy. So one policy between the firewall and the SASE. So it follows your users. It's not an issue. And so I think it's... Look, the milestones ahead of us are just to increase capacity. We're in the tens of thousands. We need to get out, you know, to... Higher levels, even though it covers most of the size of enterprises, that's in the bell. The outer sides, the other ends of the curve, you need to be able to hit.
Gabrielle Borges: When do you think you'll be able to hit 100k plus?
Kip Meitzer: I'm sure we'll be able to tell you that at the analyst day when we have it.
Gabrielle Borges: And typically, there's an analyst day that's in the works, but
Kip Meitzer: I would just say that, you know, we've given a little color that, you know, we probably, you've heard us, you know, we did, over the past two years, we did the analyst track. And so what you can expect is probably in the coming year, once, you know, Nadav's had one year under his belt, that we probably want to come out and talk to Wall Street and give them some better ideas of how to view our company and what lies forward, right? What's the expectations that they can have for the years in the future.
Gabrielle Borges: Let me ask you about firewall refresh. So you are in year two on quantum refresh. We've talked about how in any given year, it's 20% of the installed base plus or minus that's up for renewal. Last year, I think, was north of 20%. This year, we're also tracking north of 20%. How do you think about firewall refresh for your business and specifically the risk that we've now had to above 20% years for Check Point, which means next year might be a below 20% year?
Kip Meitzer: So I would say in the first half of the year, we expect to still see strength. And it may even go beyond, right? We'll see what we talk about in the beginning of the year once we finish up this year and have our plans for next year. I think some of the interesting things dynamics that are going on in this market is, you know, security matters and people are caring about it. And more so than ever. And, you know, efficacy from a standpoint of critical vulnerabilities. I mean, every, you know, sales loft event just puts another feather in our cap for, you know, what it's like to have efficacy of our standards. And so what I would say is when it comes to the hardware side, that's really where the cesspool of of critical vulnerabilities are. And some of our competitors are worse than others. And I think that creates a great opportunity, especially when you look at the total cost of ownership, when you start adding in how many times you're patching, how many times you're dealing with breaches and things along that line. So I think the potential for us to grow at the market or above the market is definitely there. And again, this is what time will tell. But we think we're uniquely positioned from the product sets that we have and what we've delivered. We're seeing cases today where people are doing refreshes, and they're actually refreshing into our competitors' solutions where they have their footprint. And I expect that to continue. But time will tell.
Gabrielle Borges: You made a really interesting nuance there around first half of next year. Why would 1H next year be stronger for firewall refresh for Check Point versus the second half?
Kip Meitzer: Because that's what we can see.
Gabrielle Borges: Okay, sorry.
Kip Meitzer: It's only that, just what we can see.
Gabrielle Borges: All right, I'm going to ask one more on SASE, and then we'll go to the audience. We've been trying to triangulate where we are in terms of enterprise SASE adoption. And we had thought that a lot of wood had been chopped during COVID. But actually, it seems like there's some really nice growth in the SASE market today as well. So would love your thoughts. Do you think we're still relatively early on in enterprise SASE adoption, or is this going to be more of going from older gen solutions to newer gen solutions and now checkpoints competing on the newer gen solutions side?
Kip Meitzer: So one, I think it's very, very mildly penetrated when you look at all the number of SASE out there, you know, largest install base, I think it's Zscaler with 9,000 or 10,000. When you look at everybody else and what it counts up to, it's not that much. We have north of 100,000 customers. And I believe the last time I checked, it's somewhere in the 80% do not even have a SASE solution. So that's all Greenfield. And anybody that's done an early adopter approach that has, say, one of the guys that have a larger position, Once you start having the benefit of having your firewall, all your network, and having one policy that follows your users no matter where they go, so you have that same corporate policy, and it's ease of use in doing it, right? There's not a chance for user error of opening up two different management consoles to try and implement the same policy or anything along that line. So I think this goes back to security matters. And part of security is how you manage it, right? If you're having to dip into different management consoles, you have things that are loosely coupled together instead of tightly integrated, that's a very different experience.
Gabrielle Borges: Your nuance here on you could already be best of breed, it sounds like, for tens of thousands of users, if I'm understanding this right. So is it fair to say that there are no barriers or technical reasons why you shouldn't be winning in that mid-market, lower end of the enterprise category today for SASE?
Kip Meitzer: I would say once we launch it, right? So that product, the full product that we're talking about, it's being launched in Q4. We're still selling it today, but think of it as beta testers, people taking it on, that type of thing. Like we've had people that have been our customers for many years that are part and parcel into, you know, endorsing it and building it and telling what's needed.
spk04: Gotcha. All right. Let's pull up questions from the audience.
Max Gample: Don't all rush at once.
spk00: I could ask a follow-up on the safety point.
Kip Meitzer: You're never short for words.
spk00: Yeah. When you say you need to add more capacity, what are we talking about exactly? Are we talking about more points of presence to deliver the product?
Kip Meitzer: No, scale. Just the scalability of the product.
spk00: Through the infrastructure or the process?
Kip Meitzer: Through the infrastructure, through everything. Through the actual application of it.
spk00: Got it. So is there any way to quantify the points of presence that you currently have?
Kip Meitzer: I think we have north of 50. But you see, our points of presence aren't what makes the difference there, right? You have it going over the public cloud. You have it going through a private for each customer. And then you have what goes straight out to the internet. So it's the application itself that really needs to scale.
spk00: Got it. That makes sense. Yeah. Coming back to the discussion of AI, AI first security is the core focus for Check Point. Beyond threat prevention, how do you expect to be able to monetize your AI capabilities? And what's the timeline?
Kip Meitzer: Well, I think, first of all, I think it's early days. But I think threat prevention, but also threat prediction, right? That's part of the game plan. But trying to predict what's next. But I think it's early days to be talking about it from my standpoint. I think when we get to early next year, I think we'll have a lot more to say about a lot of different things.
spk00: How do you think AI is impacting security budgets and strategic conversations? And why might this cycle be different than prior cycles?
Kip Meitzer: I don't think, you know, everybody says it's eating software. It's not eating security. If you're not protecting your organization, if you're training, if you're doing anything like that, you need security more than ever. So I don't think it's impacting security budgets whatsoever. I think it actually could enhance them, to be honest with you, in the longer run.
spk00: But not enhancing them at the moment?
Kip Meitzer: I'm not in a position to make that statement, right? We'll see how the next couple of quarters go, right? So I just don't think they're impacting budgets in a negative way.
spk00: OK, got it. And you've mentioned AI implementations for internal productivity. What are some of the use cases you're seeing that are driving?
Kip Meitzer: So it's funny, I found out about one from Roy while we were in New York. So we have them around engineers. We try to utilize it. And everybody's got an AI project in every part of the company. But Roy told everybody on his team that they don't get to hire anybody until they can show AI improvements. So it was a challenge to his team. which is let's see what kind of efficiencies we can build with leveraging AI throughout the finance org. And I was like, interesting. I'm already using AI, so I'm okay. But I can't get any leaner, right? I'm only three people, me, myself, and I. So, yeah, no, so it's interesting. We have embraced it in a very big way.
spk04: What are the use cases in finance?
Kip Meitzer: I don't have those off the top of my head. I would say they're in the process of implementing them. Let's just say that. What's the use case in your world?
Max Gample: Are you going to get rid of Max with AI?
Kip Meitzer: Are you going to have one of those little Tesla guys to do Max's job?
Gabrielle Borges: It's impossible.
Kip Meitzer: Oh, that's probably true. Thank you.
Gabrielle Borges: We can obviously talk more offline. We just did a session with our CEO of engineering to chat through some of our AI use cases. But I think we're pretty much at time.
spk04: So let's ask some more questions from the audience. Please.
spk03: Clearly, the space is consolidating around the larger vendors. And certain of your peers, quite a few actually, but certain ones are being more aggressive than others in terms of how they handle their cash collections, et cetera, organic acquisitions. So what does that, if anything, How are you guys handling that tactically? Are you doing anything differently because of that?
Kip Meitzer: From an M&A perspective?
spk03: Whether it's M&A, whether it's how you are investing in the business, how you're dealing with customers in terms of getting their feedback, how they feel about some of this stuff.
Kip Meitzer: So I think, first of all, we have, for feedback from our customers, we have a group that's called Checkmate. And our customers are advocates. for the company, and that's how they communicate with the company through these programs. They have meetings. There's online resources, everything. So we've got that down pat. As far as when it comes to M&A or how our competitors are addressing the market, I think that's separate from the way we operate our company. I think we pay attention, and I think we try to understand what they're doing, but it doesn't change us from our North Star. Um, you know, we, we are flexible and we adapt in what we're doing and, you know, we're not rigid. We're not just going one way with, you know, blindly. Um, but we, we definitely, we don't, we have a path that we're following and, you know, we're an open garden approach. Nobody else has that approach. Um, you know, we're looking to make our customers environment as safe as possible. And in that, from that perspective, our competitors aren't our competitors. They're our partners. And so the idea there is the focus should be on the customer and making them safer. And that's where, you know, being complimentary, that's where you bought the Verity acquisition. So you can see our focus remains on the customer. So we take our belief in having the highest efficacy of security we can and doing everything to achieve that. And at the same time, trying to make our customers' environments as safe as possible. And whatever we're doing, it's going to be with that goal in mind. And we believe that's what's going to take us to the next level.
spk04: Kip, always a pleasure. Please join us in thanking Kip for his time.
