Check Point Software Technologies Ltd (CHKP) 2009 Q2 法說會逐字稿

Greetings and welcome to the Check Point Software second quarter 2009 financial results.

At this time all participants are in a listen-only mode.

A question-and-answer session will follow the formal presentation.

(Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Kip Meintzer, Director of Investor Relations for Check Point Software Technologies.

Thank you, Mr.

Meintzer, you may begin.

Thank you, Claudia.

Welcome to all of you joining us today.

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

On the call with me today are Gil Shwed, Chairman and CEO, along with Tal Payne, Chief Financial Officer.

We would like to thank all of you for joining us today for a review of Check Point's second quarter 2009 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 Checkpoint.com.

For your convenience the conference call replay will be available through August 12th.

If you would like to reach us after the call, please contact investor relation at plus 1-650-628-2040.

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

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

These forward-looking statements may include -- our beliefs regarding projections related to the acquisition of the security appliance business of Nokia; our expectations regarding our sales pipeline; our expectations regarding the performance and customer acceptance and adoption of our products; our expectations regarding the potential impact of market conditions on our business as we move forward; and our expectations regarding our business outlook and results for the third quarter and full year of 2009.

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 the purposes of 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 outlined in the press release that was issued today and the risks discussed in Check Point's annual report on form 20F for the year ended December 31, 2008, which is on file with the Securities and Exchange Commission.

I would also like to point out that these forward-looking statements are based on Check Point's expectations and beliefs as of the dates hereof and that Check Point assumes no obligation to update its forward-looking statements.

Additionally, during the course of this call Check Point management will discuss non-GAAP financial measures.

Check Point's management believes the non-GAAP financial information provided during this call is useful to investors in understanding and assessing Check Point's ongoing core operations and prospects for the future.

The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Management uses both GAAP and non-GAAP information in evaluating and operating businesses internally and as such has determined that it is important to provide this information to investors.

In our press release, which has been posted on our website, we present GAAP and non-GAAP results along with reconciliation tables which highlight this data.

Now, I would like to turn the call over to Tal Payne, Check Point's Chief Financial Officer.

Thank you, Kip.

Good morning to everyone joining us on the call today.

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

Our quarterly result came in at the high end of our projections, with 12% year-over-year growth in revenues and non-GAAP earning per share.

Before I begin providing you with further details on the quarter, let me remind you that our second quarter GAAP financial results include equity based compensation expenses according to SFAS 123R, expenses relating to our acquisitions, including the amortization of intangibles and restructuring costs and the related tax effects for such items.

This quarter, we consolidated Nokia Security Appliance business for the first time in our results.

GAAP results for the quarter include the fact of certain charges relating to the acquisition.

These charges include the amortization of intangible assets in the amount of $4.6 million and restructuring charges of $9 million.

Net of taxes, the charges totaled $11.9 million.

Keep in mind that non-GAAP information is presented excluding these items.

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

Second quarter revenues were $224 million, an increase of 12%, compared to $200 million in the second quarter of 2008 and 15% sequential increase over the previous quarter.

Our revenue growth was evident in all regions and led to our highest quarterly revenues to date.

Revenue geographical distribution for the quarter was as follows -- America's contributed 44% of the revenues; Europe, Middle East and Africa with 44% as well; and the Asia-Pacific and Japan region contributed the remaining 12%.

From deal size perspective and quantity, this quarter we saw an increasing number of large deals.

Transactions greater than $50,000 accounted for 51% of the total order value, compared to 41% in the same period a year-ago.

We had 21 customers, but each had transactions with a value greater than $1 million, compared to 14 in the same period last year.

Look at -- looking at revenues by type, our software update, maintenance, and service revenues were $141 million in the second quarter of 2009, representing a 23% growth over the second quarter of 2008 and 14% growth sequentially.

Our products and license revenues also show sequential growth of 15% from $72 million in the previous quarter to $83 million this quarter, with a healthy growth in all regions.

This was accomplished while we began shifting in the last year more towards subscription based technology programs than delivery recurring revenues.

These programs include our software blade offering, smart different services and our total security subscription packages.

This shift, in addition to the foreseen new product cycle of our endpoint products, which expect to be released later this year, both explain the change from last year product revenues.

In our comment on security appliance business we saw significant growth year-over-year.

The growth is mainly attributed to IP series and Power-1 appliances.

The growth in non-GAAP operating expenses this quarter relates mainly to the increase in cost of revenues, which was driven by our growing revenues and by the increase in compensation expenses.

With the Nokia acquisition we added over 300 new employees to Check Point, mainly in sales, product development and technical services.

Following the completion of these acquisitions, we now have approximately 2100 employees.

From a operating profits perspective, we posted an exceptional result.

Our non-GAAP operating income was $116 million in the second quarter of 2009, an increase of 15% compared to the same period in 2008.

The synergies associated with the successful acquisition of Nokia Security Appliance business contributed to these record results and enabled us to achieve a non-GAAP operating margin of 52% for the quarter, up from 51% in the comparable quarter last year.

This is a great accomplishment.

They can enter account the higher cost structure for the acquired business.

GAAP net income for the second quarter was $75.6 million, compared to $79.2 million in the second quarter of 2008.

EPS was $0.36 for both periods.

The GAAP net income in the second quarter of 2009 includes an increase in the amortization of intangible assets of $4.6 million and restructuring charges of $9 million relating to the Nokia security business acquisition.

Net of taxes, these charges totaled $11.9 million or $0.06 per diluted share.

Non-GAAP net income for the quarter increased to $101 million or $0.48 per diluted share, up from $92.7 million or $0.43 per diluted share in the second quarter last year.

Earnings per share came in at the high end of our guidance, representing 12% growth compared to the year-ago quarter.

Our effective GAAP and non-GAAP income tax rates for the second quarter were 20% and 19% respectively in consistence with our guidance.

Deferred revenues as of June 30, 2009 was $362 million, an increase of $83 million or 30% over the deferred revenue balance as of June 30, 2008.

The growth came both from the acquired deferred revenues, as well as from organic growth.

Our customer renewal rates continue to maintain an industry-high levels.

For the second quarter of 2009, our DSO, day sales outstanding, reduced to 79 days comparing to 81 days in the first quarter of 2009.

While we saw increase in the DSO this quarter, our business remains back end loaded.

Our cash flow from operations increased to $113 million, an increase of 37% compared to Q2 last year.

This was mainly as a result of strong cash collect -- strong collection from customers.

We ended the quarter with approximately $1.63 billion in cash and investments.

The credit quality of our portfolio remains high and consistent with our conservative investment policy.

During the quarter we purchased 2.2 million shares for a total cost of $50 million as part of our share repurchase program.

Moving forward, we have $131 million remaining from the $400 million share repurchasing program approved by the board in 2008.

With that I will turn the call over to Gil.

Thank you, Tal.

I would also like to thank all of you for joining us today.

The second quarter was a standout quarter for us from several perspective, including our record financial performance, which Tal has just covered.

From a product and strategy perspective, we continue to be excited about opportunities of our new software blade architecture presents.

Over the last quarter we extended our portfolio of appliances with the addition of the Power-1 11,000 series and IP series.

We also introduced our new SMART-1 line of management appliances delivering on our vision of unified network ICS and endpoint security quality management based on our software blade architecture and delivered to [certain] clients.

In addition we introduced our latest management blades SmartWorkFlow, which enabled customers to take advantage of security policy change management and enhance compliance.

One of the main most exciting aspects of our blade architecture is our ability to deliver new applications in the form of software blade, enabling customers to implement this addition of technology, immediately utilizing their current security infrastructure and without the need to add complicated and expensive new system.

This reduces both direct cost and total cost of ownership.

We believe our software blade architecture and comprehensive security product portfolio can help customers make their enterprises more secure, while making their security infrastructure simpler to manage.

Check Point accomplishes this by streamlining their security infrastructure and the allowing them to reduce the number of security vendors they utilize.

We're also working with the next generation of our endpoint suite.

Over the past few months we have made many improvement to our endpoint strategy.

We now have dedicated (inaudible) sales force for endpoint and we just released two major innovative technologies for endpoint security.

WebCheck for addressing one of today's most challenging areas of security, preventing malware from attacking a personal computer while surfing.

The second technology is called OneCheck and provides a single unlock and security control point for all security subsystems from the disk encryption to the windows log on.

Overall we're making a lot of progress on the endpoint side and it can be a good source for upside in 2010.

During the quarter we closed the Nokia acquisition and achieved early success with our integration efforts to date, as our quarterly results indicate.

From day one, all our -- all operation aspects of the Nokia acquisition were integrated into Check Point and we now operate as a single organization.

The success to date of the integration effort is complemented by the enthusiasm we have experienced from our customers and partners.

I just returned last week from our Check Point experience Asia-Pacific event in Thailand, where experience (inaudible) first hand.

In fact, we even saw an increase in attendance at the event, despite the current macroeconomic condition, which I believe speaks to the dedication of our customers and partners.

Now, we would like to address our financial projections for the rest of the year.

Keep in mind that while our results offer have been very good, the softness in that column is not behind us.

My projections are going to raise the ranges we provided before, but the level of uncertainty in the market is still high.

For the first quarter of 2009 we expect revenues in the range of $220 million to $236 million.

Non-GAAP EPS is expected to be between $0.42 and $0.51 a share.

GAAP based EPS is expected to be approximately $0.10 less than that.

For the full year of 2009, we expect revenues in the range of $870 million to $920 million, and non-GAAP earnings per share between $1.88 to $2.00.

GAAP based EPS is expected to be approximately $0.40 less than that.

Thank you for being with us on the call today and now let's open the call for your question.

(Operator Instructions) Our first question is coming from Katherine Egbert with Jefferies.

Please state your question.

Hi, good morning, good afternoon.

Congratulations on a good quarter.

You signed an unusual number of larger-sized deals in this quarter, which you know flies in the face of all the uncertainty we have seen in the economy.

Can you give us a little color on that.

Was that attributable to Nokia or what is going on there?

Thanks.

Hi.

I believe that these things are two indications.

One indication we're seeing the number of large deals growing over the last two years based on our efforts to work closer with customers, to work on larger projects and overall doing, I think, a better job in our accounts management.

Nokia and the (inaudible) and the rest of the appliance strategies also helpful because we're becoming bigger and bigger partners for our customers.

Invest consolidation of purchases of now not only the software but also the appliances (inaudible) and with Nokia even more threat is getting the deal sizes even higher.

Okay.

And then I know you probably won't give us a number, but can you just characterize how Nokia contributed for the quarter?

Was it -- was it better than expectations or worse?

And also was it accretive or how dilutive was it.

Thanks.

It was accretive and it was I think better than we expected.

We also look at acquisitions very, very carefully and we saw very good performance.

What is important to understand that it is almost impossible for us to break down these two numbers separately because before we had the clear cut between the customer buying the Power-1 and contributing revenue to Check Point, for example, or buying IP appliance from Nokia and not contributing revenue to Check Point.

Now customers have a much better choice.

We now are very neutral if we choose to buy Power-1 or IP series appliance or UPM1 for certain model or IP model that corresponds to that, so the shift in that business and the mix of that business is now changing very, very quickly, based on that integration and I think customers are very happy about that and we're very happy about that.

Okay, congratulations, Gil.

Our next question is coming from Gregg Moskowitz with Auriga.

Please state your question.

Thanks very much and I would like to add my congratulations as well.

Just a couple of questions around Nokia.

Just one, Tal.

How much of the deferred revenue balance in Q2 comes from the transaction.

And then just secondly, I notice on the cash flow statement you only had a $57 million cash outlay for the transaction, which was less than I expected.

Just wondering if you could talk about if there are any future obligations relating to that.

Thank you.

Thanks.

I will start with the -- with the transaction costs.

You see the amount in the cash flow as you stated.

We cannot relate to you because we are committed to keep it confidential.

Only disclose is what we have to according to GAAP numbers, so you can see the numbers in the cash flow by itself.

That is one.

My I remind that the restructuring cost is not included in this line item and is part of the operating cash flow.

That is one comment.

So the $9 million restructuring cost is appearing as a deduction in the operating cash flow, which mean operating cash flow was $9 million higher than the $113 million that you actually see.

So that's one comment.

And the second regarding Nokia and the deferred revenues, in the acquisition they net of what we already recognizes within the (inaudible) numbers, but I can tell you it was in the low $10 million.

Okay, thank you.

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

Please state your question.

Hi, guys, good quarter.

Gil, just wondering if you give us a sense what you're seeing by geography here in the Americas vs.

Europe.

If you could just maybe categorize the just the selling environment between those two and if you have seen any changes.

I haven't seen a big change in the environment.

I think overall we're seeing good demand and good willingness to do deals in all regions.

This quarter in particular Europe was actually performing a little bit better and provided a very good growth rate more than the Americas.

Asia, based on both on our efforts and most of other factors is showing very nice growth.

We have a renewed [airports] in Latin America, which is still very small for us but consistently over the past few quarter is showing high growth rate.

So overall we have seen healthy growth all over.

Beyond Asia, which is still small and Latin America, which is small, too, Europe was the -- was the good -- was the highest growth this quarter, when -- when -- between the Americas and Europe.

Got it.

Also wondering if you could give us a sense of the contribution of hardware this quarter as the net percentage of total product revenue just giving the Nokia acquisition.

Now the shift towards, not hardware it is integrated appliances, which is software and hardware, but appliances now are more than 50% of our product sales.

Great.

Thanks guys.

Our next question is coming from Daniel Ives with FBR Capital Markets.

Please state your question.

Yes, could you just talk -- if you think about the progression of the quarter, was there any change that you saw with customers willing to do bigger deals or -- especially in the last few weeks of June, maybe come in July or just trends that you've seen.

Mostly no big changes.

I think one thing that I am positively impressed by our sales management and sales force in recent quarter is that they are making their -- their forecasts pretty accurately.

So, we haven't seen too many surprises.

The trend, of course, is being more back-end loaded continues even though this quarter was less back-end loaded than Q1.

So I mean compared to last year it was more back-end loaded, but compared to Q1 it was a little bit less back-end loaded.

And overall I haven't seen customers pulling back on large deals or -- I mean, I am sure that there are examples of less but from my memory recollection I don't think that we have any examples of that surprises like that of customers that are committing on a deal and backing off for any reason in the recent quarter.

Thanks, congrats.

Our next question is coming from Shaul Eyal with Oppenheimer.

Please state your question.

Thank you.

Hi, good afternoon.

Congratulations of mine as well.

Two quick questions.

Gil, how is the response to the newly introduced software blade architecture so far?

The response is very positive.

I mean, I look at it both (inaudible) from service that we're doing the acceptance level is very high.

I mean compared to the time which we have it in market, many, many people recognize that and relate to the idea.

From meetings that I have with customers it is equally positive.

I mean, customers like the concept.

We're showing them a lot of examples of what we can do with it.

For example, we have a big push into its ID space by simply activating the IPS blade.

And again there is a lot of enthusiasm about that.

I mean, the reduction in complexity, the reduction in cost, the increased level of security the customers can get because today almost nobody active at IPS in the blocking mode or active mode with more impassive mode and we encourage people to put enactive modes are great.

There's a lot of things that customers can do.

The overall response today very good.

Again, if you just one example for one blade, it would still take time because let's remember with our large customer and large install base, for them to upgrade to a new version it takes a lot of time.

And I don't expect that to finish any time soon.

However, the interest level is high, the enthusiasm is high and that means that we can, if everything continues to work -- to work well, then we should expect to see some nice upside from that later this year and even more so in 2010.

Thank you.

And would you characterize the account performance as you guys taking share from competitors and maybe a word about the competitive landscape, thank you.

I don't have any good tools to estimate percentages or to quantify that.

My feeling is that we are doing quite well and are taking -- taking market share.

We haven't seen too many changes in the landscape.

I mean, Cisco remains an important player.

Juniper remains a competitive Company.

Beyond that we hardly hear about -- about other companies in the marketplace and I haven't seen any new name crops up recently in the network security space.

Got it.

Thank you very much and good luck.

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

Please state your question.

Hi, guys, Michael Turits.

Questions on margins.

Good margins this quarter.

On the G&A line I noticed that they actually went down sequentially.

What -- what were you able to do in order to -- to accomplish that given it -- it was an expense quarter from the acquisitions.

And then, secondly, on the gross margin line, the -- you saw the license gross margins go down.

Is that about the level that we should expect in that?

I would imagine service would pick up as you work through the purchase accounting, but is this about what we should see on license gross margins going forward?

I think -- our thought with the gross margin it is already integrating the majority of the -- the IPC effect in Q2, so I would say it is a good range, the number that you see right now there.

The more appliance you will have the slightly more it will go down, but I think right now, as Gil said, we passed the 50%.

I think it is a good rate for a -- for a longer period.

And with more costs -- costs reductions or optimization we can do, but I won't build on that.

I mean it is not -- don't build any assumption like that into your model but it is some -- some challenges for us.

Yes, but I think you know 88 is a great result taking into account that over 50% of our revenue is coming from appliance, of operating revenue is coming from appliance.

So that is one comment.

And the second regarding the expenses, bear in mind this quarter is already fully integrated all the headcount increased and the added expenses that we had in the integration of Nokia.

Having said that, you can see 52% operating margin, which is quite high, even compared to Q2 last year, which was 51%.

In that trend the lines like G&A look specifically, you see last year it was 8 and this quarter it is around 8 million as well.

Q1 it was more -- very minus (inaudible) -- can slightly fluctuate a million or two between quarters depends on a certain provisions for -- for onetime items which -- which you have in any quarter.

It can be legal, it can be finance, can be rent, it can be other items that can have slight fluctuations, so I would say it's pretty stable levels.

Nothing material there.

Okay, thank you.

Our next question is coming from Walter Pritchard with Cowen & Co.

Please state your question.

Hi.

Tal you had mentioned that it looked like year-over-year that the business was more back-end loaded, but I noticed that DSOs were down year-over-year and even that with bringing over some of the receivables balance that I assume you had from Nokia.

Just wondering how -- how I reconcile those two things.

Sure.

I think Gil has actually completed the answer when he says comparing to Q1, 2009 it was slightly less back-end loaded.

But compared to -- comparing to last year on Q2 2008 then it was higher.

So I would say the phenomena of back-end loaded quarter is here, it didn't go away, but it was slightly less back-end loaded comparing to Q1 2009.

And there can be a slight explanation for the fact that we reduced the DSO 2 days from 81 to 79.

Great.

And then, Gil, I'm wondering now that you have owned the Nokia business here for, I guess, three months or so and you have a better view into sort of their pipeline and the refresh prospects and so forth, I'm wondering if you can just give us a sense of how much either -- is there pent up demand in the base, are we sort of at a state where they are refreshing now with regularity and I guess I would be surprised if that were the case because of the economy, but just want to get your comments on -- from a refresh prospective what you see in the Nokia base.

Impressions I got so far is that the behavior of the Nokia business is -- has a lot of stability in that because of the refresh cycle.

We're not talking about the refresh cycle with -- like done once every five years or -- it is much less cyclical then you can expect.

On the same time in the software business we had very little refresh because the license is -- the license used to be perpetual, so that hardware business actually provides more products -- more product annuity -- it is not annuity but more renewal or refresh of product on an ongoing basis and the -- so far again, three months maybe too little to say, but so far we see a surprisingly in that business, a little bit more stability than the software product licenses that we have in our original business.

And then just lastly on the M&A front, I'm wondering if you could just give us a sense of where you stand now that you have the Nokia business, at least the first few steps here integrated, how you're looking at the M&A landscape and potentially participating in that.

We're looking very actively on more opportunities to acquire companies.

Having said that, it is not easy to find very good companies that would fit our vision and would fit our architecture, but in terms of our willingness to acquire more companies, we want to do that.

We feel that Nokia is behind us, so we are -- our resources are available to do more deals.

And we're actively looking to see what can make sense and -- and fit our vision and strategy.

Great.

Thanks a lot.

Our next question is coming from Sarah Friar from Goldman Sachs.

Good morning, good afternoon, thanks for taking my question.

Just coming back to the license revenue.

We can see the sequential growth in the quarter, but clearly now we have had two quarters in a row of year-over-year declines.

Now, Tal, I know in your prepared remarks you talked about the shift to subscription based technology programs, et cetera,.

Could you talk a little bit about when we can get back to product and license revenue year-over-year increases and is there any kind of catch-up that happens or is it more annualizing through the comps of the subscription revenue shift?

You're right, Sarah.

We talked about the shift that we see in the few programs that we had and I think I talked about also the quarter before about the shift we see the Smart difference services and the security subscription packages which pretty much allow a customer not to purchase the license, but to pay a monthly fee or an annual fee which allows him to have the -- an operating expense, in a sense.

It is good for us because in the long-term it can increase our revenues and you can see a significant increase in our service revenues.

So that is one factor.

Taking into account the smart -- software blade offering that started a quarter and one half ago, the same many blades there are offered as a service, as an annual fee which will have the same phenomena.

So the more people will move into these packages, it will -- it -- we will see a shift from product revenues to service revenues.

In the long-term you will see the increase even more significantly in the services.

And I would also add that, and Tal also touched on that, but again we are offering more and more customers the ability to buy the entire deal on the -- on the monthly payment, like -- like an (inaudible) [model] where they pay every month instead of purchasing.

So it's not the big number in the overall financial result, but, for example, if you would take these deals and account them in the one time, then you would see even this quarter, an increase in product sales.

So overall from our business year-over-year performance, we are selling more products and more licenses this year, or this quarter than we saw in Q2 last year.

Got it.

And just so then do we get back to a point where product and license actually grows year-over-year, or do you guys just stay -- because I would presume you annualize that all through because you're right, it is better for the long-term of your business, but I think investors always end up focusing on that product and license revenue line.

I think it will happen between one to three quarters from now.

I mean --

Got it.

I think if everything works well Q3 should show that.

But I would be a little bit more careful and expect that at the beginning of 2010.

But between now and the first quarter in 2010 we should see a -- we should see that happen.

Okay great.

Thanks for the clarity there.

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

Please state your question.

Hi, guys.

Two questions for you.

First, if I think of the Nokia business coming on stream here, can you give me some sense for how it will impact product revenue versus software update and maintenance?

Are you seeing any Nokia revenue on the product side?

I think it is all one -- one business.

We're addressing the same customers, the same structure, the same accounts, and while we're still work to unify that and do that we're already operating as one organization.

I was surprised at how quickly it happened in our organization.

Usually in previous acquisitions -- first, in previous acquisition had different products and different and slightly different customer bases.

Here exactly the same customer base.

t is exactly the same kind of programs and the unification is happening much, much faster than we expected.

I don't think it should have too many changes.

Okay.

And then can you guys give us some sense on Point Sec, what you are seeing in the market there and what the growth profile of the Point Sec portfolio looks like.

I think first we have unified our endpoint offering as one umbrella of endpoint and we're trying to move away from selling just one compliment, like Point Sec disk encryption.

We're are now in the middle of a new product cycle when we're bringing the new latest release of that.

There is a lot of pent-up demand and some even deals that are waiting for that -- for the new version.

And my expectation with all of that finishes we'll start to see better results of that business in the beginning of 2010.

Okay.

Thanks guys.

Our next question is coming from Robert Breza with Check Point Software.

Please state your question.

Hi, [Tal Rodriguez] from RBC, actually.

Didn't know I got a new job.

Wondered if you would comment a little bit more on the deferred revenue.

It was up very nicely sequentially.

Seasonally it normally doesn't go up.

Is there anything from a -- an integration perspective where maybe more of the maintenance contracts are deferred or -- from Nokia or there's a higher deferral rate.

Anything to give us more insight on the increase in deferred would be great, thanks.

Sure.

I would say the following -- of course we had the consolidation of Nokia opening a balance of deferred revenues discounted according to accounting rules, so that is one effect which is the major one.

In terms of the movement between Q1 to Q2 balance at the end of the quarter, we see some contract which are longer periods and therefore can increase the deferred revenues, but we already talked about it from a year-ago phenomenon.

So that is something that actually stabilize in the last few quarters.

So that would not be another reason for growth and we just -- the truth is we have a -- we have good bookings.

The bookings were good this quarter as -- in Nokia and in our products as well.

So all in all I would say it was just a good result which drove deferred revenues up.

Great, thank you very much.

Our next question is coming from Sterling Auty with JPMorgan.

Please state your question.

Thanks, hi.

Two questions.

First back to the Nokia.

Can you describe whether the Nokia contribution to the quarter or the benefit in the quarter was disproportionate to any one geography or was it evenly spread similar to the rest of the core business.

It was evenly spread.

Nokia was slightly stronger in Europe and in the U.S.

this quarter, but again, it splits pretty much consistently with the rest of the Check Point business.

I think you can see it also in the -- in the -- I alluded to the geographical distribution of our revenues.

With 44% in Americas and 44% in EMEA and 12% in Asia, or in Asia-Pacific and Japan, well, you can see it is very similar to our historical rates which we have between the quarters, so no major shift there.

Okay.

And any FX impacts in the quarter to -- to revenue and expenses, obviously more to expenses?

Yes, I -- what -- I just remind you the basic, the basic thing in our P&L structure, majority or substantially all of our revenues are coming in dollars.

In the expenses we have a certain portion of approximately 50%, slightly more in local currencies, therefore whenever the dollar is weakening, it affects, it increase our expenses and of the dollar is getting stronger than it reduces our expenses.

This quarter FX was a net $2 million effect.

Negative.

Negative, which means if the dollar was a lot more, our EPS would have been even $0.01 higher.

Okay.

And just one clarification, Gil.

Just want to go back to the endpoint security.

You mentioned some of the new products some of the pent up demand.

When -- are the new products available right now or how do they roll out over the next couple of quarters to give you the visibility into improvement in 2010.

It does take time.

There are certain technologies, like the OneCheck and WebCheck, which are now already available in the release called R72, whereas the bigger release that is coming -- that is coming later in the year, that is more revolutionary in terms of the underlying architecture, that will come, hopefully, later this year and maybe the beginning of 2010.

So this takes time and we are trying to move in that space in a better way than it was done before.

So we're not saying to customers, wait for six months or a year until you get an improvement, we're actually coming every quarter with an endpoint release.

But as I said, I think we will start to see results from what we're doing both from a technology and from a sales standpoint in the beginning of 2010.

All right thank you.

Our next question is coming from Israel Hernandez with Barclays Capital.

Hi, guys.

Good quarter.

It is just a -- just a quick question, Tal, on the -- on the cash -- cash balance that continues to grow.

Any thoughts here about increasing potential buybacks going forward?

It is getting kind of ridiculous at about $1.6 billion given the size of your Company.

Just want to get your process here as we move forward.

Thanks.

I think that is really pretty standard.

We continue to look about the use, as already mentioned, that we're looking into more acquisition opportunities, but from the same time it is hard to find the right one.

I think we'll also look at buyback again, but keep in mind we gave that explanation before.

We're limited on the amount of buyback we can do based on the taxation of the -- of the amounts, so we can not drastically increase the buyback without taxation affects.

And so overall, we keep looking at all options.

I think over the last few years we have shown that we are utilizing our cash in all these ways, both in acquisitions and in buyback and we're doing it fairly consistently and we will keep doing so and maybe we will find even the better usages of the cash.

Thank you.

Our next question is coming from Kash Rangan with Merrill Lynch.

Please state your question.

Mr.

Rangan, your line is live for questions.

Okay, then our next question is coming from Scott Zeller with Needham and Company.

Thank you.

I know there were a couple questions earlier on endpoint.

Could you tell us, though, what the approximate product license break out was between endpoint and core security.

No, we don't break that.

But, again, core security did very well, endpoint multiquest.

Okay.

And also for the Nokia business, could you tell us gross margin-wise roughly if things came in better than expected on gross margins versus the core Check Point appliances?

The gross margin on the core Check Point products are better than -- than on the Nokia lines.

I mean, I am comparing appliance to appliance, not appliance to software.

And that is one of the long-term options for our improving by streamlining operation, by integrating product lines and by getting somewhere in the middle.

I tell you that both product line are very profitable, so we're not trying to do any shake-up because both of them are good businesses and both of them provide good value for the customer and good value for us.

And -- but just generally speaking, that's the two -- two kinds of things.

And I think we can see we consider the effect it is -- our gross margin reduced from 92% to -- to 88%, which is great results.

There is always potential for some more savings, but there's always other factors that work both ways.

So we say I think 88% gross margin is a -- is a good result for a Company that has such a significant revenues coming from appliance nowadays.

Thank you.

Our next question is coming from Ziv Tal with Oscar Gruss.

Please state your question.

Hi, congratulations on a good quarter.

Gil, how would you characterize the account competitive landscape in the endpoint security, is there something that is missing in your portfolio and -- that is required by clients.

I think all of the endpoint security market is very competitive.

A bunch of very large companies that are very competitive and there is also a few number of mid-sized companies that are finding their way up.

And there's another tier of small companies which we see -- which we see less that are always there.

So I could characterize that as very competitive right now.

I think we have a lot of venue proposition that we can pay and I must say that as much as I think we can do much better, we grow much more on the endpoint, the level of interest with customers that I find is very, very high.

I've just returned from our Check Point experience conference for Asia, where there's so many deals and meetings that people that wanted to know about the endpoint that I'm -- that I can be -- that I can be positive or optimistic about the prospect.

The main thing is not about competing on the same thing, but the main thing that our product, which is really, really differentiated, at the endpoint.

Given that we're a very, very small player there, we need to find a good way to explain the differentiation and to show customers that we can take three or more different products and consolidate them into a single endpoint engine.

And that, by the way, holds true even after some of the consolidation we have already seen in the markets.

It's not -- I'm not just speak on the what was the situation a year-ago, but what the situation should be now based on the differentiation now.

And now that we have even come up with OneCheck and WebCheck, I think it even increases the differentiation, but it is very competitive.

Thanks for taking my question.

Our next question is coming from Rob Owens with Pacific Crest.

Please state your question.

Great, thank you.

Most of my questions have been answered at this point, but did want to drill into long-term deferred revenue and the sequential change you're seeing there.

I think I was down $9 million, $10 million sequentially.

Thanks.

I think we related to that if you look at the top of deferred revenues then you can see the increase is just the shift between the -- between the long-term and the short-term.

And as I said, we stopped seeing the increase in the long-term.

We see more -- more increase in the short end.

So all in all the deferred revenue did increase.

No, I see that, Tal, but I am curious why the long-term went down by $10 million.

Is that a function of duration.

Were there some significant contracts that were onetime in nature before?

Probably the second, the latter, yes.

Okay, great, thank you.

Our next question is coming from Katherine Egbert with Jefferies & Company.

Hi, just wanted to do a quick follow-up.

We have all alluded to it, but can you just address it outright.

What are you seeing out of McAfee as a competitor in network security since they bought Secure, thanks.

Short answer is, we don't.

(laughter) Appreciation for McAfee.

They are doing very well on endpoint and they are a very good Company.

But I'll repeat the short answer, we haven't seen any presence on the network security front.

Okay, thank you.

We have no further questions at this time.

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

Once again we'd like to thank all you guys for participating today.

And if any of you would like to speak with management after, please send me an e-mail, get on the call list or ring me directly.

So thank you once again and have a great day.

Bye-bye!

Ladies and gentlemen this does conclude today's teleconference.

You may disconnect your lines at this time and we thank you for your participation.