Check Point Software Technologies Ltd (CHKP) 2021 Q3 法說會逐字稿

Welcome, everyone, to our third quarter 2021 financial results video conference.

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

As a reminder, the video conference is live on our website and is recorded for replay.

To access the live conference and replay information, please visit the company's website at checkpoint.com.

For your convenience, the replay will be available on our site.

If you'd like to reach us after the call, please contact Investor Relations by mail at kip@checkpoint.com.

During the course of this presentation, Check Point's 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 and customers, the introduction of new products and programs and success of those products and programs, the environment for security threats and trends in the market, our strategy, focus areas, demand for our solutions, the impact of COVID-19 on our business, including our supply chain, product development and sales and marketing efforts, and then on our financial condition and results of operations, the impact of COVID-19 on customers, suppliers, business partners and the macroeconomic environment as a whole; our acquisition of Avanan, the growth of markets in which we operate and our businesses and financial outlook, including our guidance for Q4 2021.

Because these statements pertain to future events, they are subject to risks and uncertainties.

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

Factors that could cause or contribute to such differences are contained in Check Point's earnings release issued on October 28, 2021, which is available on our website, and other factors and risks, including those discussed in Check Point's latest annual report on Form 20-F, which is on file with the SEC.

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 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 our financial results.

Thank you very much, Kip.

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

I'll just remind you all that before I go into the numbers, the GAAP financial results include stock-based compensation charges, amortization of acquired intangible assets and acquisition-related expenses as well as the related tax effect.

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

And here we go, let's start.

So it's the first quarter, actually, that I prepared a financial slide.

I hope you like it.

But if you have any comments, I'll be open to hear any comments and the things we can improve.

So here we go.

Revenues, it was a good quarter.

You can see it in the numbers we published.

Revenues and EPS, both are above our guidance.

Revenues reached $534 million, $7 million above the midpoint of our guidance.

And earnings per share surpassed the top end of our guidance, reaching $1.65.

So it's $0.01 above the top end of the guidance.

Looking at our revenues, billings and deferred revenues.

Revenues increased by 5% to $534 million versus 4% last year.

Billing, $517 million.

We calculated the billing, the implied booking, the way you do it.

So it's the gap -- the change in the deferred revenues plus the revenues, increase of 9% year-over-year.

Last year in the same quarter, the increase in the billing was around 6%.

So that's accelerated.

Nice to see that.

And deferred revenues reached $1.456 billion, which is $154 million growth, which is 12% increase year-over-year.

Looking at the security subscription, we can see clearly that the acceleration and the success in the revenues is relating -- continues to be related to the acceleration in the security subscription.

We had a very nice quarter here.

We can see again year-over-year, last year, the growth was 10%.

This year, subscription reached -- this quarter, subscription reached $190 million, reflecting about 36% of our revenues and growing in 13% year-over-year.

The growth was attributed to 3 factors: one, continued double-digit growth in Harmony; second, double-digit growth in CloudGuard, both are the new pillars that we announced in the beginning of last year.

And Infinity continued to be very strong with a strong adoption of the Infinity solution.

I'm reminding you it's either adopting 2 pillars or 3 pillars in the financial model.

And we can see an increase.

Last year, the growth was very nice as well, was 81%.

This year, triple digit this quarter reaching 172% and becoming a nice number, which already starts to affect the growth index in the subscription, hence the 13% growth year-over-year.

If I move to revenues by geographies, 44% in EMEA, 44% in Americas and 12% in APAC.

So we can see double-digit growth both in EMEA and APAC year-over-year.

A bit highlight in the P&L.

I'll go through some of the line items as usual.

Gross profit continued to be strong, reaching $474 million with 80% margin.

If we see compared to the sequential quarter, same percentage, 89%.

Compared to last year, small reduction.

We continue to invest in 2 items.

One is, of course, the investment in the cloud infrastructure as we see the growth in our revenues in the business and the services of the cloud, also the investment in our cloud infrastructure.

And secondly, as you are aware, there's some supply chain constraints in the markets, in general.

We delivered on time to all of our customers with slightly higher costs relating to some items.

So that's part of the effect that we have here and even smaller effect is the start consolidation of Avanan in our numbers, small numbers, immaterial, but included here as well.

Operating expenses.

So let's start with the main item that we talked about.

If you recall, we said we plan to invest in our headcount and to increase our investment in sales, marketing and R&D.

This quarter, we added over 250 employees.

So we start to see us ramping up onto the plan.

It's still not fully there, which means we still have a growth there, which we're very excited about.

And you see some of it already in the P&L, you see the increase in the cost.

And second, and that's why you see even higher in the R&D, is because the dollar weakened against many currencies, but also the shekel year-over-year.

Our R&D mainly in Israel.

The effect of the change in the currency is about $5 million this quarter.

If we look at the profits, strong profitability continues.

We have although the effect of the increase in the headcount and the weakness of the dollar, still operating income $261 million, 49% operating margin and 41% net income margin.

You can see the gap between the operating margin and the net income relating to what we discussed for many times, financial income.

As our cash balances rotate and the interest rates move down, the yield on the portfolio is reducing.

We talked about a reduction quarterly of about $1 million to $1.5 million.

This quarter, it's reduced slightly less than $1 million, standing on $9 million.

We expect that to continue, of course.

Our income taxes, similar to the sequential quarter, was 19%.

Year-over-year, a slight increase relating to the fact that we have provisions in our taxes, provisional links to the index.

And we see, in some countries, including Israel, index moving up, resulting in an increase in the tax rate.

I'll just relate to Q4.

Q4 is in line with our expectations.

If you recall, every Q4, if everything goes as usual and there's no things that I can't predict, then we have lapse of statute of limitation in Q4.

Therefore, the taxes are expected to be around 0%.

Of course, it can be slightly higher, slightly lower, but that's the indication as of now.

Cash.

Our cash flow position continued to be strong.

Cash balance is $3.8 billion.

This quarter, we acquired Avanan.

Avanan cash effect -- net cash effect was $234 million.

$220 million you can see in the investment activity and about $14 million is included in the operating activity.

Our operating cash flow, $251 million, very strong, strong collection.

DSO of less -- around 56 days.

If I eliminate the Avanan acquisition, it's an increase of 4%, which is in line with our expectations.

We continue to buy back shares.

This quarter, we acquired 2.6 million shares -- 2.64 million shares in an average price of $123 in a total amount of $324 million.

We ran out of the previous program, that's why we approved in August, a new share repurchase program.

Same amount, expansion of $2 billion, up to $325 million a quarter with the same rules.

All in all, really nice quarter.

And at this stage, I will move it for Gil for his business highlights.

Thank you.

Hi, everyone.

Pleased to have you all on our call today, and I'd like to start by giving a little bit of the business update.

I'd focus about the state of cybersecurity and how do we fit into that framework.

So I think as we probably all know, the threat landscape has never been greater.

I mean it's really, really the attack surface has expanded, we are seeing surge in large-scale Gen V attack, I don't know if you remember, but almost 3 or 4 years ago, we formed this category of fifth-generation Gen V attacks.

Back then, these attacks were fairly rare and most attacks were from previous generation.

This year, 2021, we're seeing that Gen V attack are actually taking over.

And you can see here a few examples like the SUNBURST SolarWinds, Codecov, the Colonial Pipeline, the Kaseya and many, many other attacks that we're seeing on an ongoing basis, sophisticated, multi-vector, polymorphic, zero-day attacks that are very, very hard to identify and block.

And that's the challenge of our industry, to actually stop these attacks and keep them out of our environments.

I think what we see is -- the reason that we're seeing such a surge in attacks and especially sophisticated is multiple reasons, but I'll just point out the 3 main ones here.

One is the fact that the employees are everywhere.

And that means that areas -- first, our attack surface has expanded.

It now includes our home computer, our daughter's, wife home computer and many, many places that before weren't connected to the corporate network.

And second, with many things on the corporate side have opened that were never opened before, our manufacturing floor, our training floor, our development environment.

Many of these environments were either completely isolated from the network or had very rare connection to the Internet, and now they are widely connected.

Add to that the cloud, which is open and relies on multiple applications from multiple vendors, both our own, but also application of additional vendors, the hybrid data center which means that there are more and more connections between application and each connection like that is a vulnerability point, and we see the explosion of very high risk profile that hackers are exploiting.

Challenge, our industry, the existing solution, in many cases failed to address that in the proper level.

There are multiple reasons, too.

First, no focus on prevention.

If you look, huge part of our industry is focusing on detection, finding out that you've been breached and that's too late; and remediation, again, too late, too expensive.

Expensive, not the dollar-wise, expensive in the damage and the time and what's going on to the organization.

And there's many, many security solutions.

Again, there is hundreds of -- maybe more than 1,000 security vendors.

Typical enterprise would find itself between 12 to 55 security solutions.

That's unmanageable, unbelievable in terms of managing that complexity.

And worse than all of that, it doesn't add to level of security.

These solutions work separately.

They don't work in conjunction with one another to block the attack.

So something may be found by one solution, but may arrive on a different vector that's not protected with some other technology that could have prevented it.

So we really need something different.

And that's like -- that's what we are doing with Check Point with our Infinity architecture, securing the cloud, securing the network, securing user and access, CloudGuard, Quantum and Harmony.

The brain that consolidates, it's all not just the complete management, but our threat cloud that makes sure that all of these solutions work together and really address the critical attack vectors in a way that no other security architecture today in the marketplace can address.

That's not easy to deliver that.

That's not -- requires a lot of effort.

It's not just a supermarket of solutions.

They actually need to work together.

They actually need to be tightly architected, and that's a challenge we took upon ourselves, and I think we're delivering on that very, very well.

I think you can see some recognition and we get more and more industry analyst recognition.

You can find a lot on our website.

You can find them on our press releases.

But here is an example of the G2, one that actually takes view of the product from multiple angle, and this is a great testimony to the strength of our architecture.

We appear on 6 different leadership breeds, leader in these 6 categories, cloud data, mobile, e-mail security, endpoint protection, firewall and cloud workload.

This is chosen by users.

So this is based not just on theoretical discussion, this is based on actual users use.

And the users use us as leaders in all these categories, you can even see some of the quotes, best cloud protection; endpoint secured, network more secured; checkpoint firewall, security is priceless, all are quotes from the last few months.

So this is, I think, a good testimony to the fact that finally, we see recognition that this architecture works and being recognized as something that delivers the solution.

We have amazing list of customers with our Infinity architecture and we have -- and with all our stack of solutions.

And maybe I'll just show you a few examples of that because, I think, Tal already mentioned that, that's one of the areas that I want to focus on today, is on Infinity.

With our Infinity architecture and Infinity sales, and Infinity sales, just to explain what it is, is customers that have multiyear deal with us that capture more multiple pillars from our architecture.

So these customers make us their strategic security vendor and we make them a very important strategic customer when we support them and take care of them in a very, very nice way.

Usually, Infinity deals are not simple deals of buying products, but we are allowing the customer very wide access to a big portion of our portfolio.

Again, the broadest is for all the portfolio.

Some Infinity deals have only 2 of the pillars and not 3 of the pillars that we have, but this is -- and they vary by size.

Most by the way, Infinity deals, some are for large customers, some are for small customers.

They usually become large and strategic deals.

So here are a few examples.

Again, it's a small, small sample from some deals that we won this quarter.

And you can see all geos, all industries, U.S. oil, health care services, medical devices, oil and gas, telcos, utilities, insurance.

And you can see here, most of these deals are pretty large in companies that are multibillion-dollar companies, Fortune 500, tens of thousands of employees.

Even though I must tell you, we have a lot of very good deals of Infinity of companies with hundreds of employees.

And again, even if you have 200 or 300 or 500 or 700 employees, when you sign up to Infinity, it becomes a strategic deal for both sides.

Maybe I'll give you one example here for one win that we had with Infinity this quarter.

And this is large manufacturers, apparel, more than 60,000 employees, operates in 160 countries, a 7-digit deal, when they actually wanted to consolidate multiple elements and mainly to connect the network, the data center and the cloud.

So their 2 pillars are the Quantum and CloudGuard.

And this was a deal like many others, but especially this one was highly competitive with some of our top competitors claiming that they have better performance and tried to prove that that's a way to enter the account.

The company has hired a third party to evaluate the products in the lab, and we are very, very clear that we came up on top in terms of performance.

And of course, the customer liked the superior management and our ability to scale it almost indefinitely with our Maestro solution that allows kind of cloud-like architecture in the data center.

And again, here, it's important because they also need to connect it to the real cloud.

So these are very typical reasons why we win, but it's always good to see them in large sophisticated customers.

So this is a good example of an Infinity win and typical one what we have and hopefully will continue to grow the pipeline of such deals.

Let me switch gears a little bit to the Harmony family.

And this quarter, I wanted to focus on the Harmony because we've expanded it, because we've done a lot of it.

Tal already stated that we've seen a nice double-digit growth in Harmony.

Like Infinity, many different customers, different industries, different case studies, and you can see here some really nice examples, semiconductor manufacturer, 75,000 employees; water purification, 40,000 users; a software company, which was a competitive replacement; health care services company which has a lot of patients; and the government institution with more than 90,000 endpoints now using Check Point Harmony.

Once again, I want to give you one simple example of a customer win case.

This one is a very interesting one.

This customer was using security on the endpoint from multiple vendors.

Good reputable vendors, by the way, and not niche players, good nice reputable vendors.

And on July 3, they were attacked by ransomware.

We have a good relationship there, and they contacted us immediately, and we got our incident response unit, by the way, which is second to none, really high-quality incident response team that we have in Check Point.

They got in the same day and started investigating the case, found out what's happened, find out the type of ransomware and so on.

The next day, the customer has already requested to see what the Check Point product could have done better for them, and they've seen a demo and a trial of our Harmony suite.

And 2 weeks later or less than 2 weeks later, we already -- 10 days later, we already won the deal and replaced multiple vendors with a much -- with a solution that's superior, that works better, then the threat intelligence, threat hunting, the real-time blocking, the real-time alerts, work together and deliver better security to this customer with 40,000 employees.

So this is pretty impressive and pretty big.

But I think the big news this quarter was that we expanded the Harmony family, and we really extended it with stronger cloud email offering.

So I want to maybe explain a little bit the opportunity here and what we are doing in the field of cloud email security.

The cloud email security today is about $800 million.

Gartner are expecting that it will grow to -- by 150% to almost $2 billion in the next few years.

And I think the big change here is that enterprises are moving a lot of their email to the cloud.

Some of it is because all the regular benefits of the cloud and the general shift.

Some of it is the strong push from Microsoft to move the exchange installations to Office 365 installations on the cloud.

So this is a very dominant power in the marketplace.

And the challenge is that the conventional email security solution don't really fit the cloud email.

For example, they require to reroute all your email to their what's called MTA, mail transfer agent when in the cloud, you already enjoying the fact that the cloud -- the email arrives directly to the cloud provider.

So there's no need to reroute it.

Many, many other things that are issues with the existing solution, not to mention the technological challenge which we don't address, all the different phishing, zero-day files, suspicious links that are contained in email, that's also a challenge.

So both the security and the delivery are challenges for email security.

Now usually, I would say this is a big market with big players, so it will be hard to enter it.

I think we have a unique opportunity here because of the shift in the market to cloud solutions.

Now one important thing to remember that the vast majority of cyber attacks start with some form of email.

Again, it can be a phishing e-mail, that give -- that somebody gives their credentials by mistake, and that's used to break into the company.

It can be an e-mail with links that go to malicious sites or it can be just attachments, and this is the worst part, can be documents with unknown vulnerabilities, documents with known vulnerabilities.

Some of the existing solutions are successful in blocking like regular known viruses that existing solutions are fine with finding.

Some of them are almost -- are not dealt properly, I'll say, delicately, with the existing solution.

For example, most solutions in the marketplace today, even if they have technology to detect zero-day or doing sandboxing to messages and they analyze files in the cloud, we still pass the email.

So you as a recipient receives an email, open the attachment, you don't know that you've been infected.

It can be 2 minutes later, it can be half an hour later, it can be a day later, somebody gets an alert that says you've been infected, and that's too late.

And the fact that someone had a technology that could have detected the attack, again, too late, the damage is already gone.

And I think that's fairly challenging in terms of addressing email threats in today's marketplace.

We've decided that it's an important market.

We've been offering a solution for that space for, let's say, the last 2 or 3 years, partly with partnership, partly homegrown.

And this quarter, we decided to really expand upon this opportunity and acquired Avanan.

Avanan has been the company we've been partnering before.

So we know them quite well.

They are the fastest-growing cloud email security vendor.

So this is a very, very important thing.

And they actually enjoy a very nice data, 5,000 customers, not trivial in our marketplace.

2.5 million protected users, #1 on peer insights.

So people really love their solution.

It's really simple, 5 minutes to set up and 30% more attacks are prevented with the Avanan solution.

So we decided that this is a great opportunity to expand our market presence, to expand our space and go strong into this changing market.

Some of the unique capabilities that we have here.

First, this is born to cloud.

It doesn't require you to reroute your email traffic.

API-based, so it plugs in directly to the cloud solution.

What I mentioned about preventing.

We are prevention first.

No email should pass our solution without either being cleaned or analyzed before it reaches the user.

And we have the unique technology for threat extraction that cleans up the suspicious attachment.

Avanan technology has been amazing on phishing.

The Check Point technology is very good about analyzing the file, so the combination delivers even stronger results.

Remember, the 30% Avanan claimed before being acquired.

So now together, I think that we have even better catch rate.

And I think together, we can deliver a solution that's very, very needed in the industry and opened up very interesting markets for us.

So all in all, I think we've expanded the Harmony into the cloud email.

By the way, we also have the solution for the other avenues on email.

So the Infinity architecture does address all the major attack vectors unlike some of our big competitors here.

It's a great expansion opportunity, and I think marks a very important acquisition for us.

Moving to our last part, summary.

So I just want to summarize what Tal says, what I've said, I think we've completed a pretty good quarter.

Revenues at the top half of our guidance, increased growth rates.

And again, reflected in many different places in the new pillars of security, in the growth in subscription and the increased billing rates.

So we are seeing some very good progress and very good signs.

EPS exceeded our guidance, our range, even though we heavily invested in the company.

And I think we will still see the results of some of these investments, some we may have seen already this quarter.

Our Infinity architecture is gaining momentum.

And again, we see it also in the growth rates on CloudGuard, Harmony and the triple-digit growth in Infinity.

And I think the expansion in the cloud email security marks an important opportunity for us which I hope will deliver the results.

So that's kind of summarizes Q3.

I think it was a good quarter for us.

I want to thank you for joining us today.

And actually, before we jump into the Q&A, one more thing.

Want to share with you our projections for the fourth quarter and the update or the increase of the projection for the full year.

So let's look into that.

Fourth quarter, we expect revenues in the range of $560 million to $605 million.

EPS is expected to be between $2.02 to $2.22, a lot of 2s.

So $2.02 to $2.22.

GAAP EPS is expected to be approximately $0.26 less.

I always say that, so I'll repeat that.

Projecting future results is very challenging.

There's a lot of unknown.

There's a high level of uncertainties.

There is a lot of potential upside, but also a lot of risks that can materialize.

So I think we need to always remember that, and there's nothing -- there's not much change in this quarter compared to others.

You do have to take in this account that we are now facing a very unusual situation, both with the corona and also with a lot of supply chain issues.

So we hope so far, we weren't affected by the supply chain.

We were affected by your supply chain, we were able to mitigate that and supply all our products to our customers on a very timely manner without that affecting our quarterly results.

There's always a risk that it will change.

We, of course, are getting ready to continue and supply that, but there's always risks that are hard to predict or may -- or easy to predict, depends on how you look at it.

Having said that, again, we still expect a very healthy and good Q4.

For the year itself, following 3 quarters, and I think we've exceeded our guidance, at least the midpoint of our guidance, we are actually uplifting a little bit the full year projection.

So revenues are expected to be between $2.127 billion to $2.172 billion.

EPS is expected to be between $6.81 to $7.01.

GAAP EPS is expected to be approximately $0.94 less.

So this kind of summarizes our projection.

And with that, I'll be very happy to listen to your questions and hopefully provide -- Tal and me provide some good answers to that.

So thank you very much.

All right, everybody.

As always, we hope that you'll keep to one question during the Q&A.

And our first step today is going to be Saket Kalia and followed by Sterling Auty.

And go ahead, Saket.

Okay.

Great.

I'll keep it to one.

Maybe for you, Gil.

I'd love to dig a little bit deeper into ITP platform contracts a little bit.

I'm wondering what products are you seeing the most usage around?

You've got such a nice integrated sort of offering there with ITP.

I imagine that Quantum is very heavily used.

But can you talk a little bit about qualitatively how much usage are you seeing in the other newer products for ITP customers?

First, I'll just say for those who don't know what ITP is.

ITP stands for Infinity Total Protection.

That's our broad platform.

When a customer gets actually access to our entire suite of technologies and products in an almost unlimited way depending on the organization side, when we're looking and we actually looked yesterday the spreadsheet to look at some examples, it's really, really varies.

Of course, many people are using our network solutions, but I'll show you a few examples of customers that were primarily on Harmony, for example.

And it really varies.

So a lot of people are using the Quantum, but the usage of cloud and the average solution ranges from 4% to maybe 10%, 40%, 50%, 60%, depending on the customer, depending on the case.

The interesting thing, by the way, we just had last week a customer advisory panel with very, very important systems from around the world.

And they already -- for example, cloud is a high priority.

But on the same time, I think the usage of cloud today is still -- even though it's growing, is still very limited.

So I think if we start today with a customer that starts with 10% of the deployment is cloud, I expect that to get more share in the next 2, 3 years.

And remember, most ITP contracts are 3 years contract, sometimes even more than that.

Our next question is coming from Sterling Auty, followed by Shaul Eyal.

All right.

So Gil, the commentary that you made on email security.

I'd be curious, what is kind of the experience that you've got versus some of the incumbent competitors, the ProofPoints, the Mimecasts and Microsoft has been a growing presence in email security as it shifted to the cloud.

And do you feel that you have all the solutions that you need to be effective in that market?

Or would a major acquisition yesterday news reports hit that Mimecast is exploring options, including a possible sale.

Would a major acquisition be something of interest to Check Point?

So these, first things might make sense.

We are evaluating.

We're looking into many of these opportunities.

I think the big opportunity here lies in the fact that there is a strategic change in the market and the shift to the cloud email.

Now I'm not underestimating the opportunity on traditional email, but there's an opportunity there because traditional email security is also growing, but then there is a risk.

And the risk is, of course, that there will be a cloud transformation and with large installed base with the traditional solutions, this will be translating into a challenging market when the growth is replaced by the cloud.

On the cloud, you mentioned very well that one of the risks is Microsoft itself.

Microsoft does offer multiple level of subscription to their cloud service, E1, E3, E5.

The top levels offer a lot of security features.

So we are looking at are we competing with the platform itself, something that, by the way, is very common and happened in many of the security spaces, competing with the native security that vendors like Microsoft are offering.

And that, by the way, puts a big risk on the traditional email security.

As I mentioned, there are unique technological capabilities that I think we are very strong at, and we believe that we may be stronger than the incumbent players like the API security, like prevention first, the fact that we can take files and either clean them up, what we call threat extraction and analyze them before we deliver them to the user, something that I think is relatively unique to Check Point.

Other vendors simply deliver the file.

And again, you open the file, you open the infection.

And the next day, your system admin sees that you've been infected.

Too late.

Let's say -- so I think the prevention first architecture.

But so again, I think we should definitely look at other options to expand the participation in email security.

But I think it wasn't trivial for me, but I think we found a unique place in the marketplace with Avanan, that has been, by the way, the fastest growing email security vendor to get into this market and hopefully maximize our ability to participate and minimize the risk in that.

Our next question is coming from Shaul Eyal followed by Gray Powell.

Question on hiring.

So with a robust hiring environment in Israel, globally, many R&D people opting to set up their own companies, how are you able to attract and maintain talent?

And maybe housekeeping associated with that, Tal, the additional 250 R&D-related people so far as indicated in your slide, does that include Avanan people?

Yes, that was a new feature.

The answer is yes, Shaul.

It's including Avanan people, which were about 100 people.

I think, first, it's a very interesting environment today all over the world and definitely in Israel where many people are moving when the market is very hot.

It's actually been a good market for us in hiring.

August, for example, was our all-time record month in hiring, all-time in Check Point, all-time in, I think, most or all geographies.

We've been able to hire the most amount of people.

So the challenge is actually keeping up.

There's a lot of movement in the marketplace.

It's still hard to find strong talent all around the world.

It's a little bit easier to find younger people, which I think for the long run, it's the right thing, the right -- for the long run, we should hire junior people and grow them within the company.

So the challenges are there.

But I must tell you, it's been an amazing market for hiring actually.

We had record number of CVs sent to our HR department and record number of hirings and hopefully we will continue with that trend.

We had a slow start to the year, but I think Q3 has been an amazing record in terms of hiring and hopefully, we'll keep that momentum.

The next question is coming from Gray Powell followed by Matthew Hedberg.

Great.

Congratulations on the good numbers.

So my question is, Check Point has been growing billings, I'd call it, at high single-digit pace the last 4 quarters or so.

At some point, does that translate into a revenue growth rate that's kind of close to that pace or at least higher than sort of the 4% to 5% revenue growth rate we've seen?

Just how should we think about the relationship between billings and revenue and billings as a leading indicator?

So the reason we don't provide billing on a regular basis is exactly because of your question.

It doesn't necessarily correlate on a quarterly basis because it's basically you're invoicing, but there is a clear link.

So I would say over time, if you see consistency in the growth of the billing, you will see consistency in the growth in the P&L.

Did that answer your question?

Yes.

I mean it's been 4 quarters in a row.

So I guess I was curious.

So you will see and you started to see.

This quarter, it's already moved up.

So you can see -- even if you just look at the subscription, you can see it's starting to crawl up, right?

So it was 10%, moved up to 11%, 12%.

Now it's 13%.

So yes, absolutely, there is a link.

All I said is the caveat that in a specific quarter, you can see some changes.

But in general, you're absolutely right.

The next question is coming from Matthew Hedberg followed by Patrick Colville.

Gil, what is just sort of the Check Point view on return to office, starting to travel again for salespeople.

And I guess I'm wondering as sales reps get out in the field with more face-to-face business with clients, do you think that could have a positive impact on pipeline generation into 2022?

First, it's a very good question.

And I think we do -- we are already operating in a hybrid model, and it really varies amongst the different areas in the world.

For example, in Europe, attendance to the office is quite high, 40-plus percent of the people come to the office every day.

Israel, we are also very similar into that.

U.S. is still very low.

And I think, generally speaking, I think our world will change into a hybrid model.

When we ask our employees, it's very, very clear, that they want to keep working in a hybrid model in the future.

And I endorse that.

I think it's a good thing.

When I -- when we got into the corona, I didn't believe in this model, I was very afraid that this will really hurt our business.

And I've changed my mind.

I think the people learned how to work remotely.

I think in the field, we definitely need to get the right combination.

So customer meetings are important and are -- and can be very, very helpful in creating stronger relationships, but working on Zoom, for example, can be much more productive.

You can do 6 meetings a day, you'll not travel the whole day to -- for one meeting by itself.

So I think the combination can be stronger.

We are trying to see how to open up.

We've just adopted a new set of guidelines to the field on a worldwide basis that enables more customer meetings, even starting to open up travel.

Not real travel, by the way, is so much needed.

Remember, most of the field is local.

So we always look at travel as the #1 issue.

But most of the field is local with their customers.

But we are opening up steadily and hopefully, we'll see an improvement even in customer engagement.

Next question is coming from Patrick Colville followed by Joel P. Fishbein which then will be followed by Philip Winslow.

So I think amongst investors we speak to, the supply chain issues are highly topical.

And it was interesting to hear Commvault earlier this week kind of call out supply chain as being something that they saw as problematic to them.

As it relates to Check Point, clearly, results this quarter suggest there wasn't much impact from supply chain.

So can you just talk to that slightly, why -- how have you guys been able to mitigate it?

And then look, we're kind of at the end of October now.

How have things trended thus far in 4Q?

And just help us understand supply chain as we enter the kind of final quarter of the year.

I don't know, Tal, if you want to take it, maybe I'll get one sentence and you will complete it.

So far, I think the logistical team that we have had, reporting to Tal, has done an amazing job in keeping our product supplies without delays, by the way, shipping very, very quickly.

We ship product very quickly to our customers, and that's been very, very good.

I think there may be risks in that.

I mean they've been working hard.

They've been spending more in order to get this.

So Tal, I don't know if you want to expand a little bit on that and say what you've been seeing recently.

Yes.

I'll say, Patrick, you're absolutely right.

I mean we've been dealing with this very well.

We are following daily and weekly...

(technical difficulty)

I think Tal has cut out.

Yes.

So I mean I will try to take it off.

If I was cut out, you are cut out or Tal.

So I think Tal's team has been very, very good in keeping up in -- with the different supplier.

We're trying to secure inventory of things we didn't have.

I think we spent so far more than $10 million in additional spending just to secure the items that we need in a fast-paced way.

Hopefully -- and I think we are ready for the fourth quarter, but it's not risk-free.

And I think I've said it in my guidance.

So I think we hope to bypass that phenomena.

It's been a real issue.

And hopefully, we'll continue with the same pace that we've done before, with -- we're continuing to supply products very fast, very effectively from all our suppliers all over the world.

Our next question is coming from Joel P. Fishbein followed by Philip Winslow.

Can you hear me?

Yes, we can hear you, but we can't see you yet.

So...

You can't see me?

That's bizarre, okay.

I'm sure that we'll see you.

Maybe we just need to put you on the spotlight, who you're.

Sorry, it wasn't because of the question.

I already answered the question, that's okay.

So now we are waiting for the next question.

Joel -- Jonathan, unmute yourself, please.

This is Jonathan Ho.

Just wanted to, I guess, maybe understand a little bit if you can just give us a sense of the financial contribution around growth rate and impact to margins from Avanan?

And perhaps how much you're including into guidance for that acquisition?

Any color would be helpful.

Yes.

The simplest color is that it's immaterial.

So it's below -- it's very, very low this quarter, maybe $1 million effect and on the bottom line another $1 million.

In general, very low millions.

The projection going forward is hopefully as we conquer market share, as Gil said, it can become very interesting.

But at this point of time, it's not material.

And therefore, we didn't change our guidance, we didn't lower it, we didn't increase the loss in a sense.

It's an organization that makes a few millions and loses a few millions, but the product is the exciting part.

Our next question is coming from Rob Owens, followed by Adam Tindle.

Great.

Tal, when you talked about the subscription line and the success you're seeing in the Software Blade revenue, you did mention multiple factors.

Can you talk about how Infinity is contributing?

And that's been a transition that's been happening for a while.

So how is that playing out?

Is it still a reasonable proxy to look at product plus software?

Are we just seeing more in deferred relative to Infinity?

So we need to start incorporating more of a billing, short-term billings type of analysis.

It's a bit early to do a more complicated analysis, but you're right in the sense when you take unlike Harmony in cloud, the majority of the dollars are going through the subscription line.

With (inaudible) Infinity, it's actually being split between product, support and subscription.

Still, majority of the dollars are going to subscription.

Because remember, because most of the product that we sell nowadays is subscription, that the fair value of the accounting drives everything into the subscription actually.

Also, there is a delay -- so there is a delay in the revenue recognition because now you follow the subscription rhythm, right?

Second thing, product, unlike before, when someone orders a product, you shipped it and you recognized immediately the revenue, now even the portion that is allocated to Infinity, you need to wait until the customer pulls the equipment and only then you recognize revenues, meaning also product portion is now being accumulated in the deferred revenues.

I wanted to ask a question on the U.S. geography.

I know you talked about it stabilizing.

You had some new management in there.

It takes a couple of quarters to get bearings.

But if I saw the slide correctly and imputed it, it looks a little bit flattish on our growth rate.

Maybe just give us an update on traction in the U.S. And if you could maybe dovetail any public sector commentary given federal fiscal year-end and outlook for U.S. public sector, would be helpful.

I don't know if we have too much on the U.S. public sector.

But definitely, we have new leadership in the U.S. We are working hard to get the potential there up and running.

We've seen some nice deals that we receive from the U.S. Yet, on the same time, it will take us time to get it up and running in the speed and in the growth rate that we need to have.

I think we've seen -- this quarter, we've seen the U.S. stabilize.

Hopefully, in the next 2 or 3 quarters, we will see it resuming growth, resuming fast-paced hiring and creating all the levels of sales people, leadership and so on, so we can really, really take advantage of the opportunities.

I think the very good news here is that the opportunity is unbelievable in the U.S. We are still seeing a strong momentum with U.S. large deals, but I think we're seeing only of the tip of the iceberg in terms of the potential in all the different segment, in the large enterprises, in the enterprises, in the midsized businesses, even in the SMB sector and all geos and, I think, in almost all the verticals.

So great potential there.

And maybe I'll just relate to something from the previous question because I'm getting a comment on that.

Avanan did not affect materially any financial metrics, neither the billing nor the deferred revenues, nor the revenue, nor the loss.

So I hope I covered fully that question.

I wanted to address something bigger picture, a higher level, I suppose.

The industry has been talking a lot about consolidation, new postures, cloud.

And yet the environment seems more complex than ever, all the new acronyms, new approaches.

Can you talk a little bit about how you think Check Point plays in that environment.

What's Check Point doing differently?

What are you doing to make customers' lives easier in the evaluation and deployment of new technology and consolidation?

First, you're absolutely right in your assessment.

On one hand, people understand that the complexity that we have today is too much.

People see that there's need for consolidation yet.

On the same time, there is more solution, more vendors, many people in the customer, IT departments are still purchasing separate solution from separate vendors.

So we clearly have -- I mean, it's working both ways.

I think what we are trying to do is, a, create one platform for that.

And that's fairly unique, even not many vendors are trying to do that.

Most vendors actually mean -- have specialized in one vector or one part of the industry and not in others.

Some of our top competitors actually do market similar architectural approach.

But in reality, they have much more -- they don't actually have one architecture and one set of products that work together, but it's more both business-wise and technological-wise split into separate products that don't integrate.

Some of them have clearly stated them and say that their focus now is not in adding more value to their platform, but rather integrating what they've got.

So I think in that regard, what we aim to offer at Check Point is an architecture that works better.

And again, it's in 2 dimensions, actually more than 2 dimensions, at least 3 dimensions.

One dimension is the management of the products and the deployment of the product, which is very important.

One dimension is the increased level of security.

And I gave the example of Avanan, which, I think, that within 30 to 60 days from the acquisition, we will have a product that have joint engines that we didn't have before.

So it will have better security even though we are within, again, a month or 2. So that's super fast integration because of the way our platform works.

So it's not just getting into one console and seeing different features, but actually enjoying the threat extraction and the threat emulation engines that we have in our or the SunBurst engine that we have in our cloud on all the vectors, including the email, for example.

Our next question is coming from Gregg Moskowitz followed by Hamza from Morgan Stanley.

So the acceleration in Infinity growth, 172% year-over-year, obviously, extremely strong.

But can you give us a sense of how much Infinity is impacting your total billings growth today?

And secondly, do you think that you can sustain triple-digit Infinity growth for a little while longer?

So let me first relate in the P&L it's a triple digit.

Of course, as the number will grow, there will be some slowdown, but because we're ramping up actually now, so you still see nice growth.

Or when you look at the deferred revenues, remember, we don't issue invoice for the entire period.

We issue an invoice only for the first year.

And remember, most of it is the support of the subscription.

So it's in line with the regular system of billings.

So there's no pulling forward of billing from the next years.

This is annual invoicing in line with the regular, and it is growing very fast, both in the deferred revenues and in the revenues.

The good news is that you don't see all the Infinity, the 3, 5 years Infinity deals in the deferred revenue in most cases.

It's part of the -- I know you have a terminal of the backlog, the remaining obligation.

I'm not giving that number quarterly, but just so you get a sense, the increase is 16%.

So the multiyears actually resides there, but the billing is including only the first year, naturally.

Because they're not being invoiced on the full period.

Our next question is from Hamza followed by Tal Liani, who will be our last question.

Gil, my first question for you is on the endpoint protection business.

It seems like we've been hearing some good things about that recently.

The solution screened pretty well in the MITRE evaluation.

I'm curious how much is that contributing to your growth?

And what are the plans to kind of be more competitive in that space relative to some of the other vendors?

First, I fully agree.

I think we have a solution that's second to none.

We have more capabilities that almost every vendor in the marketplace, even though the endpoint market has always been challenging, there is some newcomers that have an amazing momentum and almost unlimited resources to tackle the market.

There have been the incumbent vendors that are strong, large and have good understanding of the customer environment and good hold on the customer.

So I think that's why we've decided to play with that, with the Harmony and with the Infinity architecture.

I think you've seen and you -- that wasn't a coincidence that this quarter, I chose to speak a lot about Harmony, and that's because we've seen some very good results this quarter with Harmony.

So that's a -- and the Harmony includes and the majority is the endpoint solution that we have in that.

And we will build more of it.

We have a lot of EDR, MDR, XDR capabilities.

The connection between the endpoint and the rest of the solution is very important.

And I think, overall, we definitely have something very, very good with -- the opportunity size is almost unlimited, how much of it we can tackle.

That's a good question, but we are working hard to do more of that.

And at least the last quarter, it was one of the big highlights.

The last question will be from Tal Liani.

Maybe not.

How about Brian Essex.

Our last question will be from Brian Essex.

Congrats on the results.

Maybe I'd like to get maybe a sense for you about the overall spending environment, how CIOs are looking at their enterprise architecture from a firewall perspective.

So we're in one of the strongest, I think, firewall spending cycles we've seen in recent years.

What are your thoughts with regard to refreshment or refresh replacement, capacity enhancement versus migration to cloud and demand for rearchitecting enterprise security network architecture?

I think we're seeing all of that.

The question is how to quantify that.

Customers do need to refresh, customers are looking to consolidate.

By the way, consolidate in many cases works in our benefit.

We take our Maestro offering, we can take 2030 previous firewall, consolidate them into one solution.

We have virtualized the gateways in that.

We have almost, I mean, cloud-like capabilities of scalability.

And I think while I don't remember the exact percentages, but I looked recently on our Maestro platform, which enables high scale deployments and big portion was standalone gateways, and big portion were virtualized gateways, which means that customers were actually consolidating.

So it's a good opportunity as well.

Customers still need to increase capacity.

Even workloads are moving to the cloud.

The cloud in almost every case is connected to the data center.

And in almost -- and in many cases, the fact that we moved to work remotely means that we also need more capacity for people to work from home into the company.

So I think the potential is all over.

And again, we also have the potential to increase market share in that space, and I think we will -- we intend to pursue it.

Thank you all for joining us today.

That concludes our videocast for the Q3 earnings.

We look forward to seeing you guys at the end of the year, but also throughout the quarter at conferences and such.

Thank you very much.

Bye.

Thank you very much.