Check Point Software Technologies Ltd (CHKP) 2015 Q4 法說會逐字稿

Greetings, and welcome to the Check Point Software Technologies fourth-quarter and full-year 2015 financial results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

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

Please go ahead, sir.

Thank you.

I like to thank all of you for joining us today to discuss Check Point's 2015 fourth-quarter and full-year financial results.

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

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 February 5. If you would like to reach us after the call, please contact Investor Relations by email at kip@checkpoint.com, or by phone at +1-650-628-2040.

Before we begin with Management's presentation, I'd like to highlight the following.

During the course of the presentation, Check Point representatives may make certain forward-looking statements.

These forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 include, but are not limited to, statements related to Check Point's expectations regarding business, financial performance, customers and products, including its expectations for product introductions and enhancements; our expectations regarding the benefits of investments that we made, and continue to make, in our business, products and technologies; our expectations regarding demand for our solutions; our expectations regarding hiring in 2016 in sales and R&D; and our expectations regarding our business and financial outlook, including our guidance for Q1 2016 and full-year 2016.

And because these statements pertain to future events, they are subject to various risks and uncertainties.

Actual results could differ materially from Check Point's current expectations and beliefs.

Factors that could cause and contribute to such differences are contained in Check Point's earnings release issued on January 28, today, which is available on our website, in Other Factors and Risks, including those discussed in Check Point's annual report on Form 20-F for the year ended December 31, 2014, which is on file with the Securities and Exchange Commission.

Check Point assumes no obligation to update information concerning its expectations or beliefs, except as required by law.

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

Now, I'd like to turn the call over to Tal Payne for a review of the financial results.

Thank you, Kip.

Great to have all of you joining us on the call today.

I'm pleased to begin the review of this quarter and the full year.

Revenues for the fourth quarter and full year increased by 9% year over year and were at the upper half of our guidance.

Non-GAAP EPS for the same period grew 12% and exceeded the top end of our guidance.

Before I proceed further into the numbers, let me just remind you that our GAAP financial results includes stock-based compensation charges, amortization of acquired intangible assets, acquisitions-related expenses, and the related tax effects.

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.

Our revenues reached $458 million, an increase of 9% compared to the fourth quarter of 2014.

Total revenues from products and software blades grew by 12% year over year.

Our Super High-End products and software subscription led the growth.

We experienced great success with our software blades, which grew by 22%.

This growth was led by our advanced threat prevention technologies, including SandBlast Zero-Day malware protection, an area we are focused on.

Our SandBlast solution had great success both as a separate to clients and as a cloud service.

Our software update and maintenance revenues reached $196 million, representing 5% growth year over year.

Deferred revenues as of December 31, 2015, reached $906 million, an increase of $122 million, or 16%, over December 31, 2014.

Sequentially, the deferred revenues increased by 17%.

Our revenue grew across all our regions.

Revenue distribution by geography for the quarter was as follows: the Americas contributed 48% of revenues; Europe contributed 37%; Asia Pacific Japan [made] the list; and Africa regions contributed the remaining 15%.

From a deal side perspective, we continue to see strength in our large deals.

The number of customers with transactions over $1 million was 86 this quarter, compared to 85 in the same period last year.

Transactions greater than $50,000 accounted for 72% of total order value, compared to 71% in the fourth quarter of 2014.

Operating margin decreased from 59% last year, to 57%, as a result of our enhanced recruiting throughout the year, primarily in sales and R&D, and acquisitions that were made earlier in the year.

This year we intend to continue investing and further grow our headcount in those departments as we have discussed before.

Non-GAAP net income for the quarter was $216 million, or $1.20 per diluted share, up from $203 million, or $1.07 per diluted share, in the same period a year ago.

Non-GAAP earnings per share grew by 12% and exceeded our guidance.

GAAP net income for the fourth quarter of 2015 was $195 million, or $1.08 per diluted share, an increase of 10% from the fourth quarter of 2014.

GAAP operating expenses grew, in part, as a result of acquisition-related costs and increased stock-based compensation.

Our cash from operations this quarter was $212 million, compared to $210 million in the fourth quarter a year ago.

Our cash balances reached $3.615 billion at the end of the quarter.

We continued implementing our expanded share buyback program during the quarter and repurchased approximately 3 million shares, for a total cost of $249 million.

Now let's take a look at our 2015 year highlights.

We had a good 2015, with revenues at the upper half of our guidance and EPS exceeding the top end of our regional guidance for the year.

Our revenues were $1.6 billion, an increase of 9% from last year.

Total revenues from product and software blades grew by 11%.

The growth in products came mainly from the Super High-End and Data Center appliances, as well as our SMART-1 Management appliances.

Software blades continued to be a significant driver of growth, delivering $319 million for the year, reflecting 20% growth and reaching 20% of our total revenues.

We have seen growth in all of our leading blades and the greatest success in the advanced threat prevention blades.

Non-GAAP net income for the quarter for the year was $766 million, or $4.17 per diluted share, up from $715 million, or $3.72 per diluted share, in the same period a year ago.

Non-GAAP earnings per share grew by 12% and exceeded the guidance.

For the year, cash flow from operations was $917 million, an increase of 22% compared to 2014.

Net of payments relating to acquisitions made during 2015 and tax settlement payments made during 2014, cash flow from operations increased by 10% from $865 million in 2014, to $951 million in 2015.

In addition, as you recall, we began the expansion of our headquarter office building.

We expect the investment to be $60 million and to be presented as part of our cash flow from investing activities.

Through the end of 2015, we invested approximately $15 million.

The remainder of the amount is expected to be paid mainly in 2016.

In January 2015, we have also announced an updated buyback plan to repurchase up to $250 million a quarter, and up to an aggregated amount of $1.5 billion.

During the year, we repurchased approximately 12 million shares for a total amount of $986 million.

Now let's turn the call over to Gil.

Thank you, Tal, and welcome to all of you joining us on the call.

We completed 2015 with (technical difficulty) results, as Tal has highlighted for you.

We executed on our plan for the year and delivered good growth and remarkable profitability, given the investments we made during the year.

Our investments focused in our field and R&D organizations.

We hope to reap further benefits from these investments in the future.

During the year, we launched our One Step Ahead initiative which focuses on explaining the Check Point value proposition of staying one step ahead of attackers, one step ahead in technology, and one step ahead of the industry.

The key differentiation in our vision is the ability to prevent attacks before they happen, not merely detecting them after the damage is done.

This contracting approach, (inaudible) effective, [tested] every aspect of our business, and it is the core of our all of our products.

It is especially evident in our two current strategic areas of focus, advanced threat prevention technologies and mobility, which we believe present a major area of vulnerability for every enterprise today.

We're also unique in our ability to consolidate large security infrastructure and provide our customers with single management [console], increased security, and reduced total cost of ownership.

In the beginning of the year, we acquired two companies to augment our offering in these spaces.

In August, we launched our Mobile Protect Threat Prevention product, and in September we launched our SandBlast solution for zero-day threat prevention.

SandBlast blocks zero-day attacks on the (inaudible), unlike many competing solutions that only detect the attack after they've penetrated the network.

We began to see traction with SandBlast almost immediately upon launch, and in the fourth quarter it contributed nicely to the 22% growth in software blade subscription revenue.

Our mobility products are also generating a high level of interest with customers, and in the fourth quarter we started to see a nice build in the sales pipeline.

Moving forward, we intend to deliver additional innovative solutions to address the mobile and endpoint space, so stay tuned for more to come.

During the quarter, we also demonstrated the unique solution which addresses one key area which is top of mind today -- automotive security.

The system was developed to provide a complete solution to secure a vehicle's internal system as well as the connectivity of the connected vehicle.

The system has a checkpoint agent on the car which connects to the Check Point threat cloud and secures all the data traffic.

We've also continued to invest in sales and marketing this quarter.

I'm sure you all saw the announcement in December highlighting the hiring of Julie Parrish, our new CMO.

Julie was most recently the CMO of NetApp and will be located in our Silicon Valley office.

After joining in December, Julie made her company-wide (inaudible) at our sales kickoff meeting that were held over the past two weeks in Barcelona and Nashville, where we had a record attendance of Check Point channel partners.

And we began 2016 with some product announcements.

Earlier this week, we launched a new generation of our data center appliances -- the 15000 and the 23000 Series.

These appliances were specially designed to enable activation of the most advanced threat prevention technologies on every network.

Also, more and more traffic these days is encrypted using SSL.

The new appliances feature special hardware and software capabilities that enables them to detect malware within that encrypted communication at high speeds.

They feature a wide array of options including high-availability capabilities in key assets of the system.

Network connectivity ranges from 1 gigabit interfaces all the way to 40 gigabit interfaces to address the needs of large enterprises and high-end data centers.

We've also seen more competitive wins in replacement last quarter.

When we surveyed customers for the reasons they chose Check Point, their responses focused on our superior security management capabilities, our big data and analytical tools, as well as our data center and cloud integration.

And, of course, one of the key areas was the higher catch rate and prevention capabilities that our products demonstrated.

So, overall, we had a very busy year in launching new technologies, which brings me to the financial outlook.

You know my regular caveat: it's always hard to predict the future and there are many factors that can lead to outperformance, or underperformance, that must be taken into consideration.

With that said, for 2016, we expect revenues in the range of $1.720 billion to $1.790 billion.

Non-GAAP EPS is expected to be in the range of $4.45 to $4.60.

GAAP EPS is expected to be approximately $0.55 less.

For the first quarter, we expect revenues in the range of $395 million to $410 million and non-GAAP EPS in the range of $0.99 to $1.05.

GAAP EPS is expected to be approximately $0.13 less.

With that, I'd like to thank you once again for joining us on the call today and open the call for your insightful questions.

Thank you.

(Operator Instructions)

Robert Breza from Wunderlich Securities.

Hi, Gil, I was wondering if you could talk a little bit about the foreign currency, or, Tal, if you could talk about the foreign currency impact that you've seen?

And then, Gil, if you could talk a little bit about what you're seeing in the different geographies in terms of strength or weaknesses as we look forward to this next year?

Thanks.

Sure.

So maybe I'll start with the currencies.

It's a good question because, you recall, this year was actually quite dramatic when you talk about the currencies, and for us, around 60% of our business is done outside of the US.

So on the one hand, expenses outside of the US, there was a benefit to the P&L as result of the movement in the currencies, which we can measure easily, and every quarter I tell you it's $0.02, $0.03, $0.04, depends on the quarter.

On the other hand, there is an impact on the customer's budget, and hence, on the pricing in the different regions that's outside of the US.

So I think you had both effects.

On the one hand, our revenues probably would've been significantly higher if we wouldn't have the impact of the currencies.

You can look at Europe, the euro, I think, made about 21% move this year.

And in the last -- and at this time in Brazil, you see the same in Columbia.

You see it in Russia very clearly.

So I think many currencies got weaker against the dollar this year which affected the customer budget and hence the pricing in those regions.

Which when you take that into account, then our results are probably quite impressive.

When you talk about the different regions, I think in total all regions, as you can see, grew this year.

Europe did quite well, Asia compared to last year did very well as well.

You can see it also in the percentage of the [glo].

I think Europe would've been stronger if they didn't have the impact of the currencies.

Thank you.

What was the second question?

Karl Keirstead from Deutsche Bank.

Thanks.

I wanted to ask a question about the planned sales capacity build out in 2016.

Tal, you mentioned that Check Point will continue invest in building out the sales capacity.

Are you anticipating the growth in new reps to be comparable to the growth that you did in 2015, or will the percentage increase in sales capacity be a little bit lighter than the heavier investment you made in 2015?

Thank you.

I expect it to be lighter.

Last year we did quite significant investment.

We're going to continue to invest, but not as strongly as the year before, but probably faster than the revenues.

You can see it also in the guidance that we provided, that we see some reduction in the operating margin plan for next year, as well, still very strong margins but lower than the previous year.

I typically said it's going to be probably 2% less, it can be maybe 3%, 1.5%, depends on the currency.

But it's going to go down slightly more next year.

I remind you that this year we plan to be in an operating margin that was significantly lower than what we had.

But because of the dollar effect and the good execution we succeeded to meet our internal plan, but had higher operating margin, so we feel comfortable to continue with the investment for next year.

And, Tal, just to ask you a follow-up on that.

Just given the 2016 guidance that Gil made us, about 8% at the midpoint, it sounds like the sales capacity investment you made in 2015 and that you'll make in early 2016 are really intended to allow Check Point to maintain this, call it, high-single-digit growth.

You're not anticipating, obviously, that the sales rep build out will enable you to accelerate growth in 2016?

Is that the right framework?

I think it's the right framework in the sense that if you look at this year we saw a nice acceleration in the threat emulation.

We talked about it, the numbers are quite big.

You can see this quarter the software blade increasing 22%.

A lot of it is in relation to that investment.

Mobile, we said, we invested in mobile a lot, but it will take time to see results.

So the assumption is, depends on which part of the guidance you are looking at.

Higher end means better execution and higher growth rate, and lower end because in microeconomics and execution.

Gil, would you like to add anything?

I agree with everything Tal saids.

And I think the reason, of course, a lot of risks and a lot of lower market remains very challenging.

And the same time, I think there is some upside to that and we think building all the infrastructure in terms of overly safety, and in terms of technology coverage, in terms of geographical coverage.

And I think at a certain point we will start to see even more, to bear more fruits of these investments.

Got it.

Thank you both.

Congrats on the steady results.

Thank you.

John DiFucci from Jefferies.

Yes, thank you.

I think last quarter you talked a little bit about pricing pressure in the market, and, Gil, you just mentioned the challenging market.

I'm just curious, can you give us an update on that?

Have you seen any changes in market dynamics lately?

I think, first, our market remains very competitive [in what's] one factor that we've seen.

I think even more than the competition, again, [copper] companies the pressure of the currency made some impact in the past year.

And I think we are seeing it in the geographies outside the US.

Okay.

If I might --

The customer that has a euro budget, for example, and now needs to spend 20% more just to maintain the product, but it, obviously, creates a big pressure and that in some pressure was resulting in better pricing for the customer.

Again, better from their perspective and actually paying more from our perspective they are paying a little bit less.

Understood.

If I might, Gil, because this is something you talked about in the prepared remarks that something I've always thought about and talked to you before, and that's the mobile endpoint business, and, obviously, it is still very early for you, but we have heard of similar mobile opportunities for many years now.

And we're sort of waiting for this to happen.

I guess, as you look out, you're, obviously, investing in it and you believe in it, but why is it more relevant today?

And will it materialize into a very significant opportunity, or is this something that you just need to have, you feel like you need as part of a broader portfolio to have sort of a complete corporate-security solution?

I believe at first, our job is to let our customers stay one [test] step ahead of the threats.

And I think the biggest threat today to our infrastructure and to cyberspace is the mobile devices.

They are the back door for every network these days.

We carry them with us all the time.

They see all of our communications, they see all of our both vital data communications and person-to-person communication.

We're always on, we are always broadcasting.

They hear us, they take pictures of us, so I think the threat is imminent.

It's very clear that the threat is there.

Keep in mind that we've developed over the years, or the world has developed over the years, a lot of controls through the personal computer, to the data networks, and they are secured somehow.

The mobile device, at any time it may be connected to your corporate network, and at the same time it broadcasts to the public network, to the wireless network.

So this is a very high-risk situation.

Now I think that we haven't seen yet devastating attacks on the mobile devices.

But we are seeing mobile vulnerabilities in mobile exploits and malware on mobile everyday.

That what we see as part of our business.

So I think the risk is absolutely there.

The market is still very small because I think it's new.

I think one of the other factors is that IP department in corporations is not always internalized the fact that they are also in charge of the mobile devices.

It's not part of the traditional infrastructure that they buy, maintain, update, and so on.

But I'm pretty sure that the market will eventually see the vulnerability and we will need to fix it, and I think if the vendor wants to provide the integrated capabilities that we can take more of it, and I think we have the leading technology today.

Great.

Thank you very much.

[Ralph Eyal] from Oppenheimer.

Thank you.

Hey, guys, congrats on ongoing consistent performance.

Two quick questions.

Gil, I know you guys don't disclose your installed base, at this stage could be the size of it, maybe even impossible.

Do you think you have been growing consistently this number year over year, or have you been mostly selling into existing clients?

If I'm not mistaken last year, you've indicated growing it by about 1,000 customers per quarter?

I can tell you for instance, obviously, the majority of our sales is to the installed base.

We have quite a significant installed base and a big market share.

So majority of the sales are to the existing installed base.

You can see it also very clearly that our update and maintenance number is quite high.

And majority of that is naturally there.

On the product and software blade, a majority is to existing customers, but some to new customers.

We are working hard on new customers.

I can tell you just anecdotally that this quarter revenues are booking, our business from new customers in dollars increased quite significantly which is, again, are up in relation to the growth that we had in our sales, in our sales teams and increase the recruiting.

So we see actually an increase there, but still stayed and probably won't change for a while.

Majority of our revenues will come from the existing installed base just by the fact that we have quite a large one.

And I also want to add that it is a very high priority for us as we enter into 2016 to add a lot of new customers.

I think the potential is there, and I think if we do the right thing, we have even more potential to gain market share and to add new customers to the Check Point installed base.

That's fair enough.

This is very helpful.

One quick question, additional one.

On the SandBlast blades, they're very good performance this quarter, last quarter, is it all greenfields are you seeing some displacements, as well?

Yes, we are seeing some displacement.

I think it's still a market in its early days, but we are still seeing some displacement of either competing technologies or older technologies.

And, again, I think we have a very unique value proposition.

We are the only technology that people actually can use, and are using in true prevention mode that prevent a threat from entering in the first pass.

I think we are addressing more and more areas of prevent, and I think you'll see even more innovation coming to the SandBlast area in 2016.

Thank you so much.

Good luck.

Philip Winslow from Credit Suisse.

Thanks, guys, for taking my question.

Congrats on the great results here.

I just wanted to dig into the subscription attach rate, the blades, because it does seem like it continues to trend higher here.

Your subscription revenues is strong, your deferred was strong, it has been that way all year.

I know you touched on the uptake of the advanced threat-prevention blade.

I wonder if you could just give more color on just what you're seeing across the blades in terms of attach rate?

And then when you think about the 2016 guidance that you gave, what sort of increase or, and/or, steady adoption did you put into that guidance relative to what we were seeing in 2015?

Thanks.

So I was saying, in terms of the order of the blades, it didn't change.

Number one is IPS, number two is application control.

And number three and four, you probably have the -- it depends on which quarter, but you [already see all tuning] and the anti-spam, anti-virus and so on, but what I said this year we saw a change in number five and six because the blade, the threatening relation became quite significantly and took the number fifth, [anti-bot] is number five close, close around the same number.

So I think what you can see very clearly is a nice increase.

But when you look at how we do business it comes in packages.

So you see the packages are becoming more and more popular.

The next generation threat [teaks and P] TP, which is the threat prevention, with advanced blades.

So more people move into the packages with advanced threat-protection blades and that's what you see very clearly in the software blade.

Going into next year you expect, you hope to see the same phenomena, continued increase.

You see that the growth was 20% most of the year in Q4, it peaked to 22%, most of the peak is actually related to this threat-prevention emulation and that's why we keep saying when we come with new blades we will be successful in having them penetrate into the installed base and to new customers be threatening relation and mobility, as Gil discussed before, this is the thing that can fuel the growth of the software blade.

And that's what we've been doing for the last few years.

We introduce every year a new blade which helps us to sustain a nice healthy growth in the software blades.

And then, I guess, as a follow-on to that, to Gil, basically on your last point there as far as you introducing new blades.

Gil, when you look at your product set, what are the areas that you say, hey, these are the attack factors on the horizon that we could add on to our firewall.

These are the extra blades.

And when you think about beyond just network security what is the potential there?

Obviously, you talked about mobile earlier, but what do you view as adjacencies versus, yes, there is security, but there's not necessarily an adjacency to what we do right now?

I think there are definitely more vulnerabilities.

There are vulnerabilities.

I think, first, we can augment more things with similar technologies on the Cloud side, we can augment more things with new technologies to the endpoint.

And there are new types of attack, and I think mainly for competitive reasons I won't mention now, but there are a few new technologies that will come from us to the marketplace this year.

Got it.

Thanks, guys.

Greg Powell from Wells Fargo.

Great, thank you very much for taking the question.

Maybe just a bigger picture question.

How do you feel about the broader network security demand environment in 2016 relative to 2015?

I think overall in 2015 the environment was relatively healthy.

I'm not expecting big changes in 2016.

So I hope it's going to be positive.

Given the world macroeconomics there is some reason to be cautious.

But beyond that I hope that the market will continue to be healthy.

Okay.

And then just a follow-up on a prior comment from Tal.

Can you help us just quantify the impact of the decline in the shekel on operating margins in 2015?

Sure.

Again, the shekel is -- I can tell you that in total you had an effect of probably, for the year, of -- I said every quarter it was some quarters $0.03, some quarters $0.02, some quarters $0.04, probably around $0.10 for the full year.

I think that effect on the reduction in the expenses level.

Bear in mind that I believe that the effect on the revenues was much higher, therefore, I'm not sure it's actually benefited us in the operating income.

Understood.

Okay.

Thank you very much.

Jonathan Ho from William Blair.

Hey, guys.

Just wanted to understand a little bit more about your thoughts around third-party Cloud opportunities?

Are you starting to see customers shift more of their infrastructure to AWS and potentially how would that impact your business as that starts to shift over time?

We haven't seen too much of that.

I think every customer that we talk to the majority of their infrastructure was in the regular data centers.

We've seen a huge -- a higher, not huge -- a higher level of interest in private Cloud.

And I think also we are seeing some [folks] moving both to the AWS and to the Microsoft Azure Cloud, and I think we have a great product there that the customers are starting to use more and more.

Got it.

And then, you guys said it stronger win rates during the fourth quarter.

Could you maybe give us a little more color in terms of how you performed there and what was maybe driving those stronger win rates?

Thank you.

I think we've seen different things that drove that, but we have been displacing some competitors, even some of the newer competitors in the market place.

We've seen some wins that actually involve the Cloud infrastructure.

With our capabilities we're much, much better.

I think more and more customers are seeing what we saw before is the superiority of our security management.

And, remember, that's even about to be upgraded even more with our next generation management that's coming soon.

So I think -- and by the way, if you look at the NSS reports, for example, that came in the middle of the year, highlighting what it's like to catch zero-day attacks.

That was quite interesting because some of the leading technology vendors that claim to have this kind of technology pretty much failed in the test.

And one [failed out] and they threaten legal action if they publish the results, and the second one just got very low results, which is actually quite surprising.

So I think overall and -- by the way, one more thing that customers did highlight is the analytical capabilities and the big data tools that we have, so really looking into huge number of low record, pointing out the trends, pointing out the important events, being able to search them very quickly.

I think these areas are the areas we collected from our competitive analysis that we did for these kinds of customers.

Thank you.

Walter Pritchard from Citi.

Hi, thanks.

Tal, I am wondering, or I guess, Gil, you gave the guidance, the guidance range for the year, the revenue, is wider than you've given in the last several years, not by much, but still it is.

And I'm wondering if you attribute that wider range to factors within your own control around productivity and salespeople you're bringing on, or if that is attributable to more macro-level uncertainty, more so than the past?

I don't think there was too much to read into that.

Again, I think we're getting bigger, the level of funds [certainly] can be higher.

But, again, I would say, remember, when we look a year in advance, most of our revenues for the year still have to be booked.

I'm very proud of our more than 20 years of records in making the numbers, but the level of uncertainty every quarter is still high.

Still every quarter we can outperform and still every quarter there are some risks into that.

So I don't think that you should read too much into the range.

Got it.

And then, Gil, on the product side, the two new products you released, can you just help us understand, do those sort of open up new opportunities that you were not getting into before, or do you view those as more kind of replacement consolidation for products you already had out that were satisfying that need?

I think the newer products are a new generation of [malware] appliances.

They are augmenting our product line, and I think to some extent we are replacing previous appliances that we have in to [bet].

I think we do give the customers more options.

I think we do live up to our vision of saying to customers activate all the, activate all the blades, activate all the protection and get the highest level of protection.

So we spent a lot of time designing these products, designing the software capabilities to match the hardware capabilities, and ensuring that these platforms are future ready, that these platforms mainly enable running the most -- all the protections basically at the very fast speeds.

When you look at the example of SSL inspection, many vendors simply ignore that, saying the data is SSL just let it through.

Tons of malware comes through SSL connections and I think today we're seeing it from SSL being a few years ago 5% of traffic is becoming 20%, 30% and 40% of traffic.

SSL just, I mean I think (inaudible) you should know is the main product for use in encrypted web communication.

And many of the big sites on the Internet have already moved all of their traffic to SSL, so it's fairly easy to download their file and then the file becomes, again, file is encrypted and so on.

If you don't inspect that a malware can come through, if you inspect it, we will find the malware.

So there's a lot of thought and a lot of technology invested into making these new appliances ready for the modern data center.

They are at the relatively high end of our product range.

So I think that demonstrates the commitment that we have to the large customers and to the data centers.

Erik Suppiger from JMP Securities.

Yes, congrats on a good, good quarter and outlook.

Just curious, what are you doing differently in 2016 with your channel that will enable you to attract new customers?

I think we're working much more closely with the customers, we started some of it last year.

And I think we're involving customers much more in the decision making, in the training.

Just in our sales kickoff last week, which by the way, we include now channel partners in our internal sales kickoff.

So I think we've already made a lot of partners session to understand how can we be more attractive to them.

One of the areas, by the way, is much more training.

Is much more training that we like to see versus there is a big investment in channel managers that support the channel and there are a few things I don't want to necessarily reveal to our competitors in the outside world.

Very good.

Thank you.

Brent Thill from UBS.

Thank you.

Just as it relates to the Americas region, I'm curious if you could comment on the deceleration this year?

Many of the competitors are seeing multiple times the growth rate.

Is there something going on in the Americas that you feel that you could be doing a little bit better?

What were the challenges this year as you saw the growth rate decelerate?

I think you need to take into the account that Americas including Latin America and we saw significant impact in Latin America as a result of major currency devaluations there.

So, Tal, you don't believe beyond the currency that there was any other issue?

The other regions performed to your expectations.

I think that we can do much better in the Americas.

There are certain areas in the Americas which we actually saw very good progress last year.

And I think we will continue and augment it and build upon it next year.

I hope that we will see better results in the Americas.

Great, thank you.

Matt Hedberg from RBC Capital Markets.

Thanks for taking my question, guys.

Gil, I wanted to ask about customers' desire to consolidate security spend.

Is that a trend that we should expect, maybe not as much from you guys, but just in general as we progress through the next several years, given some of the strong greenfield-security wins that we saw in the last several years?

I think this is very important trend and I think we are leading the market with that, with the ability to consolidate many solutions, many technologies into one Security Management console, one vendor.

In the past [five or] years ago I always talked about reducing the number of security vendors and working instead of 20.

With fewer today, I think that we are, that we can deliver even better results.

I think that the customers can get with Check Point an unbelievable secure solution which will protect their enterprise, and I think we can consolidate 15 or 20 different vendors into one unified solution with much higher level of security, much better manageability, a fraction of the cost.

And I think customers have to be brave about it.

That's helpful.

And then maybe, I know you guys have a most $3.7 billion in cash, and you're certainly returning a lot of that in the form of a buyback.

How do you think about deploying that strategically for M&A?

What's the level of appetite here?

A lot of either the private companies or even some of the public company valuations are starting to come in quite a bit.

We're looking at the entire spectrum, we evaluate all the options.

It's not easy to find the right matches and to find things that will appeal to the large customer base that Check Point has and will fit our technology architecture, but I think you saw that last year we found two very innovative technologies.

I'm not sure if what is coming next is going to be the same thing.

It can be something on the other end of the spectrum, but I think we're very open and we are evaluating different options.

Thanks, guys.

Sterling Auty from JPMorgan.

Thanks.

Hi, guys.

Gil, you mentioned in answer to an earlier question the addition of additional channel managers.

I guess I'd like to explore a little bit further.

The new recruits that you have been adding through the year and into 2016 for sales and marketing, what is the focus of those, those new employees?

Is it adding new resellers, is it getting more productivity out of existing resellers, is it lead generation, where are they spending their resources?

I think, first, we have added people all over, but I think there's been a big focus on building the teams to support the threat prevention and the mobility.

These are [overly team] all over the world that will support these technologies.

With our new technologies, customers in the field need much more support and hand holding as we learn these new technologies, that is one area.

And very different parts of the world there are very different things.

We are investing today in more lead generation, and more people that will go for new customers, a new business.

I think there's a lot of investment on the mid market.

I think that there's a huge potential there.

We have a lot of large customers.

I think we support them quite adequately, but I think we need much more.

But we have a lot of potential on the mid-size customer that I think we can invest there.

And, as I said, it does vary by region.

There are some countries in some regions that it will be more of the channel side.

There are some places that we actually have a potential even on the high-end accounts and we will look at that.

So it's divided between the first two things that I said, the focus area of the mobility and the threat prevention, the business growth, and then there's an area of divided all over the business depending on the specific area needs.

And then as a follow-up, Tal, within the context of the guidance that you've given for 2016, how should we think about how these investments layer in?

Should we expect margins to steadily decline through the year, or is there a point where they trough and we start to see leverage, and maybe even a little bit of expansion in the back half of the year from the investments that happen earlier?

I think typically, now remember, that the Q4 because it's a higher level of revenues and then the margin is slightly picking up.

It's probably similar to this year [if you stood] the phenomena.

So the investment and the headcount increase typically is Q1, Q2, Q3.

It's going to be less, it's going to be spread more evenly throughout the year.

But I will say with that reduction Q1, Q2, and then you have in Q4 you start to see an increase.

So I think that's the picture.

Thank you.

Rob Owens from Pacific Crest Securities.

Great, thanks, and good afternoon, guys.

Tal, if I look at the first three quarters this year you saw a pretty meaningful step up in your million-dollar deals on a year-over-year basis.

Here in the fourth quarter it was somewhat flat, I think, 86 versus 85 or something of that nature.

Given your commentary around more success with high-end solutions, I thought this number might be a little bit better.

Can you lend a little color here as to why that was flat, whether it was a tough comp, or you maybe saw some push outs, or what kind of large deals are you seeing out there at this point?

(Inaudible) was across the board.

I always say, and I knew this quarter will come, obviously, I don't think it's a meaningful number.

I think it's increased slightly, but it could also have decreased.

I don't think on its own it's irrelevant barometer because we are always asked so I provide it.

I can't see anything dramatic there.

We've seen it in all the regions similar.

I think this quarter we actually saw a nice mid-market transaction.

We've seen a nice super high-end deal.

Super high-end meaning the 61,000 and 41,000 plans but some of them can be only $0.5 million, or $750 million, or $750,000, so you want this as part of the above $1 million.

Above $1 million can be fluctuated easily.

Great.

And then, second, following up a little bit on Mr. Hedberg's question around M&A, while valuations have come down, I guess, historically, if you look at Check Point's M&A over the last couple years it's been more around tuck-in acquisitions.

And I'm curious if your outlook or appetite or strategy has changed in terms of doing something more of scale, or as we look at 2016 and into 2017 should we expect more the same tuck-in acquisitions to leverage the platform?

Thanks.

I think, as we said, we are looking at the entire spectrum.

And if we find the right opportunity and mainly the right strategic match, it can be small, it can be large.

Thank you.

Gur Talpaz from Stifel Nicolaus.

Great, thanks for taking my question.

So I want to touch on the R80 release.

I think you went to a public EA in Q4, and I think you're still set to go into GAA in the first half of 2016.

Can you give us an update on early customer response for the R80 release, and how you sort of contemplate R80 flowing through the model, if you will, in 2016?

Thank you.

I think we are set for a major upgrade in 2016.

You see it with the new appliances that are important part of our core business, and I think the R80 management, which is quite revolutionary, should come quite soon.

I think -- I'm not putting too much emphasis on that in the call because this kind of upgrade can be a great opportunity for new customers for acceleration, but it can also hold back because the customer will evaluate the new technology and it will take them more time as they try to roll it into their infrastructure.

So I think overall there is a great excitement, it will be a great excitement, already a great excitement with our channel partners and salespeople on R80.

I think how it will translate to the financial results it is still too early to say.

But it is definitely very exciting and very interesting for everybody in the Check Point camp.

I will just mention that bear in mind, I think it's super exciting because it is like a leap in the management and that's an area that we are already steps ahead anyone else in the market, and this will be another big lift.

Bear in mind that our installed base is getting it for free.

That's why financially we don't discuss it in length.

It can be an opportunity in gaining and winning new customers when they get this capabilities in the management that will exist in the R80.

Great.

Thank you.

Ken Talanian from Evercore ISI.

Hi, guys, thanks for taking my question.

Just to follow up on the question around the $1 million deals.

I was wondering if you could describe how the mix between high-, mid-, low-end appliances has trended, where you expect that to go?

And then along with that, how we should think about the subscription attach rate relative to those buckets?

I think first our, in recent quarters our high-end and data-center appliances did well.

It doesn't mean that it is going to continue like that long term, but I think that's been the phenomena in the last several quarters.

I don't know, Tal, if you want to --

Yes, I think if you have seen in my Annual Summary I mentioned both the data-center appliance, the high-end, the super-high-end, and the management appliances, the SMART-1 that came out.

But to summarize the year, I will say the high end was very successful, also the small appliances grew nicely.

But it can shift between quarter to quarter, or you could take the last eight quarters, you see every quarter I have something else that's popped.

In general, I will say that was the trend in the last year.

And it can be exactly the opposite next year.

You can't predict that, right?

So to be very successful in the mid market then maybe you will see the mid appliances growing faster next year.

Okay, and how should we think about subscription attach relative to the mid and high end?

You mean the portion of the software blade as part of the plan.

That's the question?

Are you more successful in attaching subscriptions to higher end appliances versus mid and lower?

I don't think that there's a big difference between it.

We are investing a lot in getting [high] customers to adopt the new blade, and we are seeing a lot of mid-size customers, but for them is a no-brainer but you want the maximum security, and that's one of the biggest benefits of getting our solution.

Okay, great.

Thank you very much.

Gregg Moskowitz from Cowen and Company.

Hey, thank you, and good afternoon, guys.

Your subscription blade revenue growth accelerated modestly to 22% year over year this quarter.

Would you attribute that just to SandBlast or are there other factors as well that you would point to?

Obviously, in order to get to 22% growth you need pretty much both of the major blades to grow and that's nice.

All of them actually, all the major blades actually grew nicely, but increasing the growth rate from the 20% to the 22%, or the 19% to the 22%, and, remember, it can shift between quarters easily, but when we analyzed the data this quarter it was clearly as a result of the threat emulation and actually also some came from the mobile blade.

So I think we also saw a very nice increase in the mobile blade, but it is a small number, but it still was part of that growth that you saw from the 19% to 22% mainly came from these two blades, so that was nice to see.

Okay, great.

And then, Tal, since we are at year end, I was just wondering if you might be able to share with us roughly what bookings growth was for your software blades in 2015 as a whole?

Can you say if the bookings growth was meaningfully above the blade revenue growth for the year?

I think it was higher, but I'm usually not relating to the bookings, but I'm not going to provide it.

But when you look at the deferred revenues and you can see that the deferred revenues growth is basically somewhat of the proportion between the update and maintenance growth and the subscription growth, right, because that's the majority of the dollars in the deferred revenues.

And you can see that the deferred revenues grew in 17%, which is quite high.

And most of it is coming, obviously, from the update and from the subscription.

So it grew, so it grew faster, but I'm just trying to see the number, but I think it's correlated.

It's slightly faster, not significantly faster.

Okay, great.

Thanks very much.

Daniel Ives from FBR & Co.

Gil, I'm just curious.

When you compare the kickoff or just the field going into 2016 versus a year ago.

Obviously, you guys are doing well, but I know there's some fears in the securities base, which you are well aware of.

Compare maybe 2015 into 2016 in terms from a high level, from customer feedback.

Does it feel like where you guys are positioned it's just continuing to strengthen and maybe emergency spending is ticking down which doesn't affect you guys?

Maybe you could just give some thoughts on that topic just given your vast experience in the space here?

I'm looking at our sales people (inaudible) it seems where the sales people were more enthusiastic this year than last year.

We are doing both qualitative and also quantitative surveys to check that, and I think the level of enthusiasm from the year and from the positioning and all of that this year have slightly went up within our sales force and even with our investor with the channel partners.

So this is the beginning of the year.

I hope it's a good sign.

That's great.

Thanks.

Michael Turits from Raymond James.

Hey, guys.

One for Gil, and one for Tal.

Just a follow-up on Daniel's to be specific.

There is this idea that emergency spending has fallen off and we're returning to slower growth rates as things normalize.

Gil, do you see that at all?

Is there that kind of qualitative change from emergency to non-emergency?

And then, Tal, you had a bit more of a sequential benefit in dollars from long-term deferred this year than you did last fourth quarter, so anything there because that did help billings?

Within our installed base I haven't see much emergency spending, so I don't see a big change.

I think the opportunity is still there, I think the amount of customers that are using advanced threat-prevention technologies is still very low.

And even those that are using not necessarily using it on their entire network.

So I think the potential is quite high.

And when we do speak to customers, they are interested.

Again, large customers, the budgeting cycle and the sales cycle can be long, with mid-size customers it can be faster.

There are a lot of interesting opportunities and a lot of interesting projects all over the map from the small to the very large.

And, Tal?

What was the question about the deferred revenue?

Can you repeat it?

(Laughter) I know, you love these deferred revenue questions.

You got a bigger boost by, I don't know, about $10 million this fourth quarter sequentially from long-term deferred than you did last year from long-term deferred.

So that helped billings.

So anything you can tell us about why you got that bigger boost this quarter?

Not really.

If you look at it from a higher-end level you can see that deferred -- if I recall, deferred revenue this quarter year over year increased by 16%, and last year 17%, short-term 10%, last year 11%.

So it's pretty similar.

And long term, I would say, so I don't think it will change.

It can fluctuate really easily, the long term, just the total number is $180 million or $190 million and every $10 million year is quite significant, and it can shift easily.

It comes from -- there are a lot of large deals in that perspective.

That's why it can fluctuate easily because it's not -- a big portion of that is very large deals and it is these large deals, especially when you think about the multi-year deal it can be a deal that comes every three years, is not a deal that comes that (inaudible) will be the quarter.

Great.

Thank you very much, guys.

Thank you.

We've reached the end of our question-and-answer session.

I would like to turn the floor back over to Management for any further or closing comments.

Thank you for calling in today, and we'll look forward to talking to you guys throughout the quarter.

And we'll see you next quarter.

Thanks.

Bye-bye.

Thank you.

That does conclude today's teleconference.

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