Check Point Software Technologies Ltd (CHKP) 2008 Q1 法說會逐字稿

Good morning, my name is Melissa, and I I will be your conference operator today.

At this time I would like to welcome everyone to the Check Point Software Technologies first quarter 2008 earnings results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remark, there will be a question-and-answer section.

(OPERATOR INSTRUCTIONS) Thank you.

It is now my pleasure to turn the floor over to your host, Kip Meintzer, Director of Investor Relations.

Sir, you may begin your conference.

Thank you, Melissa.

Good morning and good afternoon to all of you joining us today.

This is Kip Meintzer, Director of Investor Relations for Check Point Software Technologies.

On the call with me today are Gil Shwed, Chairman and CEL, Jerry Ungerman, Vice Chairman, and Eyal Desheh, Executive Vice President and Chief Financial Officer.

We would like to thank all of you for joining us today to discuss Check Point's first quarter results.

As a reminder, this call is being webcast live on our website, and is being recorded for replay.

To access the live webcast and replay information, please visit the Company's website at www.checkpoint.com/IR.

For your convenience, the first quarter results replay will be available through May 1st.

If you would like to reach us after the call, please contact Investor Relations at plus 1-650-628-2050.

Now before we begin management's presentation, I would like to bring the following disclaimer to your attention.

During the course of this call, Check Point representatives will make certain forward-looking statements.

These forward-looking statements may include statements regarding Check Point's expectations for our total securities strategy, expectations that it will continue to execute on it's strategic initiatives in the second quarter and beyond, beliefs that it will continue expanding and enhancing product offerings, and expectations for it's financial performance and growth for the second quarter of 2008.

Other statements which may be made in response to questions which refer to our beliefs, plans, expectations, or intentions, are also forward-looking statements for purposes of the Safe Harbor provided by the Private Securities Litigation Reform Act.

Because these statements pertain to future events, they are subject to various risks and uncertainties, and actual results could differ materially from Check Point's current expectations and beliefs.

Factors that could cause or contribute to such differences include but are not limited to, the risks discussed in Check Point's Annual Report on Form 20-F for the year ended December 31, 2007, which is on file with the Securities and Exchange Commission.

Check Point assumes no obligation to update it's forward-looking statements.

Now I would like to turn the call over to Eyal Desheh, Executive Vice President and Chief Financial Officer.

Thank you, Kip.

Good morning and good afternoon to everyone joining us on the call today.

I am happy once again to begin the review of an excellent quarter for Check Point.

Our quarterly results came in at the high end of our projections, and known GAAP earnings per share exceeded them, as we continue to experience growth across all of our product lines.

Before I delve further into the numbers, let me remind you that our first quarter GAAP financial results include the following, equity-based compensation expenses pursuant to SFAS 123R, and expenses related to the acquisition of Zone Labs, Protect Data, and NFR, which we included in our 2008 results, and were also included in previous years.

Keep in mind that no GAAP information is presented excluding these items.

In our press release, which has been posted on our website, present GAAP and non-GAAP results, along with reconciliation tables which highlight this data, as well as the reasons for our presentation of non-GAAP information.

Now let's take a look at the financial highlights of the quarter.

First quarter revenues were $192 million, an increase of 17%, compared to $164 million in the first quarter of 2007.

Now that Data Security is part of our core revenue, we will no longer be reporting it separately, as we communicated last quarter.

With that, Data Security had a good quarter, and revenues exceeded Q1 2007 by more than 25%.

Products and licenses experienced strong organic growth of 17% over Q1 of last year.

Revenue growth was led by our enterprise business in the United States.

GAAP net income for the first quarter 2008 was $78.3 million, an increase of 67%, compared to $46.9 million in the first quarter of 2007.

GAAP net income in the first quarter of 2008 included acquisition-related charges of $10.3 million, and equity-based compensation expenses of $9.1 million.

Net of taxes, these charges totaled $15.1 million.

In Q1 2007, net income included acquisition-related charges of $9 million, a one-time process R&D charge of $17 million, and equity-based compensation expenses of $8.3 million.

Net of taxes, these charges total $31.7 million.

Non-GAAP net income, excluding acquisition-related charges and equity-based compensation expenses was $93.4 million in the first quarter of 2008, an increase of 19% compared to non-GAAP net income of $78.6 million in the first quarter of 2007.

Total GAAP operating expenses for the first quarter were $112.9 million, compared to $119.1 million in the first quarter of 2007.

Operating expenses of non-GAAP basis were $93.5 million, compared to $84.8 million in the first quarter of 2007.

Our non-GAAP operating margin was 51%, consistent with fiscal 2007.

Our effective GAAP and non-GAAP income tax rate for the first quarter was approximately 16% and 17% respectively.

GAAP earnings per diluted share for the first quarter of 2008 were $0.36, an increase of 71%, compared to $0.21 last year.

These GAAP earnings includes equity-based compensation expenses of $0.04 per share, and acquisition-related charges of $0.05 per share.

Net of taxes, these charges totaled $0.07 per share.

In Q1 2007, GAAP earnings per share included acquisition-related charges of $0.04 per share, the effect of a one-time in-process R&D charge of $0.07 per share, and equity-based compensation expenses of $0.04 per share.

Net of taxes, these charges totaled $0.14 per share.

Excluding charges referred to previously, non-GAAP earnings per diluted share for the first quarter of 2008 was $0.43, compared to $0.35 in the first quarter of last year.

This is an increase of 23% year-over-year.

Deferred revenues this quarter were $278 million, an increase of $40 million, or 17% over March 31, 2007, and an increase of $5 million sequentially, over the amount of deferred revenues as of December 31, 2007.

For the first quarter, our DSO, Days Sales Outstanding was 69 days, compared to 72 days in the fourth quarter of 2007.

While we saw a decrease in DSO during the quarter, our business remained back-end loaded.

We generated cash from operations of $143 million, an increase of 30% compared to Q1 last year, as a result of strong cash collection.

We ended the quarter with over $1.3 billion in cash and investments.

During the quarter, we purchased approximately 3.4 million shares for a total cost of $73 million, as part of our share repurchase program.

During the quarter, the Board of Directors approved a $400 million expansion to our share repurchase program.

Before I turn the call over to Jerry for some further commentary on the quarter, I would like to express some personal thoughts.

I have been privileged to be the CFO of Check Point for the past eight years for 32 quarters in a row, and it is time to say goodbye.

I hope that through the years, you have found my service beneficial to all of you.

I am leaving a strong and wonderful Company, with a glorious past, and promising present and future under Gil's leadership.

I wish all the best to Tal Payne, my successor, who I am sure will be a great addition to Check Point's seasoned management team.

Jerry, now please go ahead.

Thank you, Eyal, and hello everyone.

Gil and I just arrived in Tel Aviv this morning from Prague, where we hosted our Europe, Middle East and Africa Check Point experience.

This is our Annual Partner and Customer Conference, and once again we had an excellent level of participation at the event with over 1,000 attendees.

This was our second such event of the year, as we hosted the Americas event in Las Vegas in March, which also had great attendance, and was very successful.

We were very pleased with the level of enthusiasm we encountered with our customers and partners at these events, as they continue to embrace our total security strategy, and especially our new products and solutions.

The consistent input we heard time and time again from both events, was that our customers continue to benefit from our Total Security solutions, as they realized they can achieve a higher level of security and a lower total cost of ownership, when they deployed Check Point's Total Security solution.

This has resulted in a great deal of excitement around all our products, but in particular, there is quite a bit of interest around our single agent for Endpoint Security, and our new UTM-1 and Power-1 appliances.

During the quarter, our single agent for Endpoint Security was received very nicely by our customers, and we saw several very large deals close during the quarter.

Moving forward, we continue to be very pleased with the level of interest around our Endpoint Security solutions, and we continue to see that interest translate into a solid pipeline of activity.

For many years now, Check Point has embraced the philosophy of providing our customers with a choice of how they deploy our security technologies.

Over the years we have continued to evolve and expand the number of options, and today our customers can deploy Check Point software on Open Servers, Check Point appliances, Check Point integrated appliance solutions with partners like IBM, or on dedicated appliance platforms, from partners such as Nokia and Crossbeam.

To this point we announced this past Tuesday at CPX in Prague, the expansion of the UTM-1 line of appliances, and the introduction of a new line of Power-1 appliances, to further broaden the choices available to our customers.

Specifically, we have added three new models to the UTM-1 line, including an entry-level model priced under $5,000, and two high-performance models, with one delivering up to 4.5 gigabit-per-second performance.

All of our UTM-1 models have an integrated set of security applications, including Check Pint's leading Firewall technology, Remote Access, and site-to-site VPN capabilities, Gateway Anti-Virus, Intrusion Prevention capabilities, Web Filtering, E-Mail Security, and Anti-Spam.

In addition, the introduction of our new high-end Power-1 appliances was a big hit with our customers at the Prague event, the Power-1 appliances provide performance of up to 14 gigabit-per-second Firewall throughput, while delivering the most cost effective Firewall for high-performance environments available today, with a price-performance ratio under $4 per megabit per second.

It also delivers a 6.1-gigabit per second Intrusion Prevention speed, providing customers the ability to stop application layer threats at industry-leading speeds.

Now I would like to finish up by providing you with some metrics from the quarter.

During the first quarter, our geographical revenue distribution was consistent with prior quarters, with excellent performance in the United States, and we were also pleased with a pickup in results from our Asian region.

Specifically we had 44% of revenue coming from the Americas, Europe, Middle East and Africa contributed 44%, and the Asia-Pacific and Japan region contributed the remaining 12% of revenues for the quarter.

During the quarter, we continued to see a number of larger deals.

As a result, transactions greater than $50,000 accounted for 40% of total order value, and we have ten customers that each had transactions with a value greater than $1 million, coming from both Network Security and Endpoint Security products.

We were also pleased with the success we had against our competitors in all regions for both Network Security and Endpoint Security solutions.

This includes both new opportunities and displacement.

In summary, the excitement of our partners and customers is a validation of our Total Security strategy, and we are very pleased with the results this quarter, as we continue to execute on our strategy.

Now I will turn the call over to Gil.

Thank you, Jerry.

And thank you all for joining us today.

You just heard from Eyal and Jerry, the first quarter was a very good quarter for us, both from a financial and a business perspective for Check Point.

We started the year by highlighting our strategy to make Check Point the security vendor of choice for our customers.

These include the unified line of Security Gateway, a single agent for Endpoint Security, and a single console for Security Management.

This is not just a long-term strategy.

We have already started to deliver on this mission.

We launched the first single agent for Endpoint Security in February.

This week we launched a new high-end Power-1 Security appliance product line, and extended the UTM-1 product line, with both entry-level and high-end models.

Overall we are building a strong foundation for the future of security, and we are getting good feedback from partners and customers.

Despite the uncertainty in the world accordingly, we produced strong results in the last few quarters.

At this time, it is hard to predict if and what will be that impact on financial results.

Our estimates are based on the pipeline and outlook that we collect from our teams around the world, and so far they are optimistic and predict a healthy outlook.

So for the second quarter, we expect revenues to be in the range of $190 million to $200 million.

GAAP EPS is expected to be between $0.33 to $0.37 a share, no doubt earning per share excluding the effects of acquisitions and stock-based compensation, is expected to be between $0.40 and $0.44 a share.

Before I open the call for your questions, I want to once again thank Eyal for all of his contribution to Check Point.

He built a very strong financial team and infrastructure at Check Point, and has been a great partner for the last eight years for running Check Point, and making Check Point what it is today.

Eyal, thank you very much, and good luck in your next journey.

And now I would like to open the call for your questions.

Thank you.

(OPERATOR INSTRUCTIONS) We will pause for just a moment to compile the Q&A roster.

Our first question is coming from Sterling Auty with JPMorgan.

Please go ahead.

Yes, thanks.

First, Eyal, congratulations.

It has been a pleasure working with you through the years.

Good luck in all of your future endeavors.

Thank you.

Then on to questions.

Can you talk a little bit more in terms of colo,r and if you can quantify it would be great, where you are at in terms of appliance revenue at this point, and maybe take that discussion, Jerry, just a little bit further.

We are hearing the same thing with market share gains.

Specifically can you talked about what you are seeing competitively directly against Cisco?

I will talk about the competitive stuff, Sterling.

We are doing very, very well in the marketplace.

As I said, not only in new opportunities but also displacements, and on very, very large transactions with very significant companies.

Both from the Network Security products, as well as the Endpoint.

It has been a very positive road that we have been traveling here, and this quarter was no exception.

Significant wins, it is about our security solutions, a lot of it is on our appliances.

We still do a lot with our partners both Crossbeam and Nokia, we had great success with our integrated appliance with IBM.

We are seeing across-the-board success, and I guess that is why we continue to expand the product line, with new UTM-1 models, the expanded ones, as well as the new high-end Power-1.

So we are very bullish on where we stand.

And I think our strategy of providing choice, and our open choice program of software and hardware, and hardware appliances from us and integrated appliances from other partners, has proven to be very, very effective, and we hear that consistently in the marketplace, and as I said, Gil and I and the entire Senior Management team just came back from Prague, where it was reinforced over and over, by thousands of partners and customers that were in attendance there.

I am pleased with where we are going, and how we are growing.

One follow-up question.

The Endpoint Security deals, the larger deals, is there any consistency in the type of environment in which you are winning?

Meaning are you getting these big deals in either MacAfee, desktop situations, or Symantec.

Is there any type of a trend, one way or the other?

I can say that there is a very good mix, and a very different mix, both in terms of type of customers, size of those deals.

Our target is not to attack the companies you have just mentioned.

Our target is to address areas that we are not addressing today, and extend beyond what the traditional AV space has been.

And most of our wins so far have been wins like that.

I think it is the way we would like to go, by extending to people rather than by simple head-to-head competition in the Anti-Virus space, which we think is a good market, but a more commoditized market than the Anti-Security layers that we are providing.

All right, thank you.

Thank you.

Your next question is coming from Shaul Eyal with Oppenheimer.

Please go ahead.

Thank you.

Good afternoon guys.

Good quarter.

And also, Eyal, good luck in the future.

Two quick questions.

We have heard from a number of networking companies that are not doing that well, kind of reducing their guidance into the first quarter, and into 2008.

And you guys for the time being are doing absolutely well.

Is it solution driven?

Is it competitive displacement, i.e., market share?

What is driving it?

Well, I will try to answer that, because I think first I don't see there is one driver.

We have seen the success each quarter from different areas.

I think that Jerry mentioned that, but one place in the world that has been successful was the U.S.

enterprise market, when we all kind of expected to see some weakness, and actually we saw the biggest strength this quarter.

Asia, which we continue to build the infrastructure and nice result this quarter.

We have seen success on the clients.

We have seen success on the high-end, and we have seen a lot of success on the low end of these devices, and we have also seen light growth from the Endpoint side.

So I don't know if it is from one area or the other.

I think like everybody else, there is a lot of uncertainty about the economy, and I don't think we are immune from that.

I can say and reiterate the point, that our field is pretty optimistic.

And based on the results they produced in the first quarter, they are the credibility of that so far.

So again, I don't want to create the illusion that the security space or checkpoint in general are immune from what is happening in the world, but based on what we are seeing, things are going quite well so far.

Thank you.

Eyal, the foreign exchange impact this quarter, can you share with us the implication of that?

Yes, first of all I think this was the first quarter where we really had some meaningful impact from foreign exchange.

Our results are very good.

Despite that, something between $3 million to 4 million more than close to $.02 per share.

We still managed to deliver earnings per share better than, even better than the high end of our guidance, but a weak dollar is when some of your expenses are [inaudible], and some of them are in Euro and Asian currency, more than excellent uses in this quarter, but I think we survived it.

Got it.

So is it safe to assume that, number one, that you are keeping the annual guidance unchanged for the prior conference call, and but for the currency exchange and declining interest rates that impact the financial income, EPS would have been higher for the year at this point?

We don't see any reason to change the annual guidance.

And I think all these factors have been brought into consideration.

Yes.

Thank you very much.

The first quarter that we have seen the real meaningful impact of the currency changes.

And remember that pretty much all of our revenues are in U.S.

dollars.

So it is not that we are getting it from both sides, we are getting only the effect of the expenses in dollars, or in non-dollar currencies.

Got it.

Thank you very much and Eyal, once again, good luck.

Thank you.

(OPERATOR INSTRUCTIONS) We do request to please limit your questions to one question at a time.

Thank you.

Our next question is coming from Phil Winslow with Credit Suisse.

Please go ahead.

Hi, guys.

Great quarter.

Just starting off first, wondering if you can give us a sense of what hardware representatives, a percentage of your revenues you have given in the past couple of quarters?

Also, going forward, what do you expect the interest rate that you will be able to earn on your cash?

The appliances overall, first it is very hard for me to quantify the hardware effects, because we are selling appliances, and the appliances contain software and hardware.

My belief is that most of the value is in the software.

About 90% of the value is in the software.

Overall the integrated appliances that we saw, they accounted for approximately 30% of the new products and licenses that we saw this quarter.

So roughly what we have had in the previous quarter, may be slightly up.

But as I said, most of the value is not the hardware portion, but is the software portion.

I think your question about the yield, the interest rate yield.

So far our portfolio is yielding a little over 4% annually.

This, of course, would not stay like this for a very, very long time, but a few quarters down the line.

We are investing in assets which provide this kind of yield.

We have moved some of our short-term to longer term.

When we saw interest rates were heading south.

And secure some pretty nice yield for -- for a pretty long period of time.

And we secured some pretty nice deals for a pretty long period of time, as you know, we don't have the subprime problems, and our portfolio is very, very clean, and highly rated.

That is why I said before to the previous question, we have brought everything into consideration, and the yield on the portfolio is not going to suffer a lot on the low end, because we don't have a very large position, and very short term.

Great.

Thanks, guys

Thank you.

Your next question is coming from Todd Raker with Deutsche Bank.

Please go ahead.

Hey, guys.

Nice quarter.

Two quick questions.

I know, Eyal, you said just as a passing comment, that you are still back-end loaded.

But can you talk about closure rates?

And as you look into your pipeline in Q2, are you kind of forecasting consistent closure rates of what you saw in Q1.

The second question for Jerry and Gil is, with your new integrated Endpoint strategy, is there any resistance that you guys need to own all of those technologies, instead of OEMing some of those technologies?

Do you see yourself having to make acquisitions to further that strategy over time?

Regarding closure, I want to be very general, we don't go into specifics, but I think if I understood your question, we are closing very nicely on our pipeline of very little slippage from one quarter to the other.

Although it happens, it always happens, it will continue to happen.

Our back-end loaded model is similar I think to the rest of the industry.

These are the same customers and the same channel partners.

We do a little better than others, but still it is a business, let's not forget that a lot of deals close toward the end of the quarter, and it is also back-end loaded during the year.

Let's not forget Q4 is also long quarter, so not just a quarterly phenomena but an annual phenomena.

It is part of the business we are in, it comes with the territory.

The second part about the Endpoint technology.

We are seeing that customers are accepting our technology very well.

The key components, the Security Management, the many, many parts of it are Check Point where we are OEMing the technologies, they are mainly technologies that we believe are widely available from the marketplace.

So the fact that we OEM them, I think is a very good thing, and actually provide us with a lot of competitive edge, because it keeps their partners in compliance with technology, on the edge and they are, and so right now I think we have the Best-of-Breed confidence in every aspect.

Even more on that, the solution is very well-integrated.

From the customer's perspective, this is one solution.

They don't see the different complements or different technologies.

It is more integrated than some solutions from other companies that own more technology, or not more technology, because I think they own a lot of that, they own some, but they only provide security of their own.

Okay.

Thanks, guys.

You are welcome.

Thank you.

Your next question is coming from Sarah Friar with Goldman Sachs.

Please go ahead.

-- where you have still very good growth, but it came down from the last four quarters, is that annualizing out Protect Data?

Or is there anything going on on the macro side?

I am asking more because of some of the commentary out of Nokia this morning, to make sure there is nothing starting to slip in the European region?

We missed the first part of your question.

You weren't online when you asked it.

Oh, sorry.

It was a question around EMEA growth.

So if your three theatres, EMEA was your slowest.

I was more trying to dig into any changes you saw on the margins from a macro spending perspective.

I know you have just come back from Prague.

So any update.

The reason I am asking is more because of Nokia's commentary this morning, that perhaps they were starting to see some spillover into EMEA, from the general macro slowdown that we have seen.

We haven't heard these comments, but we came back this morning actually very early from our conference in Prague, and it was a record conference, stronger than any year before.

The comments with regard from our European partners and customers were very positive, and again, last quarter Europe, and the last few quarters, Europe was extremely strong.

This quarter Europe was very much in-line with what we expected.

The main good news is actually this quarter we saw strength in the U.S.

But so far we are seeing things that are pretty healthy, and our group of European people for the second quarter is also very good.

Okay.

That is great to hear.

And then just on the tax rate side.

Tax rate picked up a little bit this quarter to a higher level than they have seen for the last few years.

Is that a good level to assume going forward around the 17%?

Or is there any reason why it ticks back down again?

Yes.

So 17%.

It is a good level if you remember at the end of 2007, we already talked about that.

The tax rate will uptick.

And I think the level that we are seeing now, let's remember, it could fluctuate a couple of points up and down, but that is a pretty good level.

Thanks a lot and good luck, Eyal.

You are welcome.

Thank you.

Thank you.

The next question comes from Katherine Egbert with Jefferies.

Please go ahead.

Good morning, good afternoon.

I have a question on the U.S.

strength.

Will all of this strength come in the quarter, or were you benefiting from any effects of spillover, if you will, from the December quarter?

Not in any major way that I can see.

As Eyal indicated earlier, there are always deals that move from one quarter to another, and there are deals by the way, that weren't completed this quarter, and will go to the next quarter.

Overall what we have seen is good Q1 activity.

In fact I think we are indicating, but remember Q4 was--

Normal course of business, a very strong quarter.

-- a very, very strong, strong quarter for us.

If that is the trend then I hope it continues.

Okay.

And just can you give a quick comment on the UTM product.

How are you doing with that during the quarter?

Thanks.

It is going very well.

We are very pleased with one year into it now, it is going very well.

I just said, we just brought out three new models to complement what we already have.

We went lower which we see a real market opportunity there to pick up a lot of, to address a lot of opportunities available in the marketplace, and we went higher.

And it is a very well-positioned product.

It has been successful for us, and I think it will continue to be, and our partners really like taking it to the market.

Thanks, Jerry.

Thank you.

Our next question is coming from Robert Breza with RBC Capital Markets.

Please go ahead.

Hey, great quarter guys.

I wonder, Gil, if you can talk about the vertical strength that you saw, or maybe verticals that you saw some weaknesses in, maybe the top two or three?

And maybe as a follow-up, Jerry, as you look at the 10 $1-million-plus deals.

Can you comment if those are new and existing customers.

And just some dynamics around there, are they multi-year agreements or multi-products, et cetera.

Any color on the million dollar plus deals would be helpful.

Thanks.

In terms of verticals, I can't say that we had much change.

I have looked at our preliminary knowledge this morning, and it looks pretty good.

I mean we had good success in many sectors.

I can name important wins this quarter in the government sector, in the financial sector, in the telecom sector.

I can't say there was any one with drawbacks.

Jerry may be able to comment on the second part.

Yes, Robert, it is pretty consistent.

I said early on that it was both new opportunities and displacements.

I think more of the Endpoint is significant new opportunities that we are getting.

Some very, very large transactions that are all competitive, but we are doing very well on a lot of the networking stuff.

Some might be customers, but we are doing displaced some very large displacements, both transactions that happened during the quarter, as well as long-term rollouts associated with many of them that we will be multi-year deployments of our technology, as they continue to take more and more product, and refresh what they have in place.

So these are some really big transactions with really big companies that will carry on into the future, and we think we have a product portfolio that is well-positioned to let us continue to do that.

I am really pleased where we stand relative to both the market opportunity, and the competitors that we have in the market.

Great, thank you.

Good luck, Eyal.

Thank you.

Thank you.

Our next question is coming from Walter Pritchard with Cowen.

Please go ahead.

Hey, guys.

Just a question around, you gave some numbers around Pointsec, talking about 25% growth in that business.

I just want to clarify, is that a reported number?

Is that adjusted for the write-down in deferred revenue that you were sort of burdened with a year ago.

The reported number.

Got it.

Just as follow-up, Eyal on the deferred revenue.

That growth has been usually quite strong in Q1.

It wasn't as strong this quarter as it has been the past Q1s.

I am just trying to understand, is there any impact for appliances on deferred revenue, or just other ways that your business may be shifting more recently, that impact deferred revenue?

No, I think the answer to your question is in Q4 last year, which was extremely strong on the increase in deferred revenue.

If you look at the annual run rate from Q1 last year to Q1 this year, it is 17%, which is very similar to the revenue growth for the quarter.

I think it is very well balanced.

I don't think that appliance has a major impact, appliances are being sold with service package, and with upgrades and subscription packages similar to software, and then it doesn't change our business model in that regard.

Great, thanks.

And as well, good luck, Eyal, in your new job.

Thank you.

Thank you.

Our next question is coming from Daniel Ives with Friedman Billings Ramsey.

Please go ahead.

Thanks, thanks.

Good job proving the Armageddon thesis is wrong again.

So in regards to geographic within the U.S., I mean throughout the three months, did you see any change from March and February, with regards to attitudes, pipelines, deal signatures?

The only thing I can say that March was very, very strong.

We had a quarter with an exceptionally strong ending.

I don't know if it was said much, but from what we have seen and our numbers perspective, that the major [inaudible].

Okay.

Have a Happy Passover.

Eyal, good luck and congratulations again.

Thanks.

Thank you.

Thank you.

Our next question is coming from Michael Turits with Raymond James.

This is Michael Turits, thanks.

Eyal, thank you for all of your help throughout the years, and best of luck to you.

Thanks very much.

Question.

On the appliance sales, how much of the appliance sales may have been a function of the replacement cycle hardware in the bay.

Is there any [retrofit] as you work through replacing the hardware in the base, that you begin to have a hesitation in the appliance growth?

I think we haven't really started to see that yet.

We have just now completed the introduction of the Check Point appliance line, and I think what it opens for us is a much higher level of participation of renewal cycles, especially for non-Check Point customers.

But in the past we weren't fully equipped to answer every need.

Because we could sell really low, we can give you a great solution on the software, but you still need to worry about the hardware, and that would be hard when somebody is replacing the competitor's hardware.

Today we are fully equipped to do that, both on the mid-range, the UTM-1, and on the higher end with the Power-1.

Right now we are only starting to see the potential of participating in the competitive replacement, where people refresh their appliance, non-Check Point appliance prototypes.

On the Data Security side, can you comment a little bit how the market is going competitively, especially with what is happening with pricing.

Do you think pricing is holding up on a year-over-year basis, and obviously any change you see relative to competitors?

I think our pricing is holding up, and kind of same average selling prices over the past year.

We are packaging it differently.

Again, I think we have a different vision than just offering Point products, we are trying to change that, in terms of offering broader solutions in the Check Point single agent for Endpoint, that offer more and more functionality around that competitive landscape.

It has been a competitive market, it is still a competitive market.

I mean I heard this week from some distributor, comments about weakness in some companies you just mentioned, but I am not commenting for the entire market, so it is very hard to say about that.

Okay.

Thanks very much, guys.

Thank you.

Your next question is coming from Todd Weller with Stifel Nicholas.

Please go ahead.

Thanks.

Two questions.

I would love to get an update on the IPS, and how that is going for you, and how aggressively are you pushing that as a stand-alone, versus embedding that into UTM.

Any just and commentary around U.S.

Government demand, and how that is looking this year relative to what you saw last year?

Thanks.

IPS continues to go well.

It is both.

It goes back to our choice thing, Todd, of software, hardware, integrated, independent, stand-alone.

We are giving acceptance across all fronts.

I think it is one of the unique things we d, is to provide both the software and hardware solution, as well as an integrated and/or gateway, as well as standalone.

I think you will see a lot more emphasis as we continue to evolve and grow, and expand the capability of the products.

We just made some announcements with it.

And I am excited about where we are going with IPS-1.

The second part of the question was --

The government.

The U.S.

Government continues to be a good marketplace for us.

Gil talked about the sectors.

There haven't been a lot of changes, but we are very broad, very diversified across all the major segments around the world, and U.S.

Government continues be too very good customer of ours for Network Security and our Endpoint solutions, and I have not seen that change.

Thank you.

Our last question is coming from Rob Owens with Pacific Crest Securities.

Please go ahead.

Good morning, everyone.

Can you tell us how much is still authorized on the buyback with the incremental 400 million added during the quarter.

400.

There is just 400 left at this point?

Yes.

Number two, if we look over the last couple of quarters, we have definitely seen a reacceleration in the core business.

How much of that is greenfield opportunity in your mind versus competitive displacements, and who do you think you are displacing the most out there?

We are seeing both, and in terms of displacement we are probably most displacing Cisco, but we have seen displacement of everyone from CyberGuard to Juniper, a very different and very broad set of displacement.

We have also seen displacement on the Endpoint, when we are displacing the other competitive solutions.

Even in a relatively young market, we are still seeing some displacement.

Thank you.

There appears to be no further questions.

I would like to turn the floor back over to management for any closing comments.

All right.

Well, thank you all for your participation today.

If you want to talk to management, please call our Investor Relations department at 650-628-2050.

Again 650-628-2050.

We will be very happy to answer your questions, and discuss further details of the quarter with you.

And we hope to listen and talk to all of you next quarter.

Thank you very, very much.

Thank you, everybody.

Have a good day.

Thank you.

This concludes today's Check Point Software Technologies first quarter 2008 earnings results conference call.

You may now disconnect.