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Earnings Call Analysis
Q2-2024 Analysis
Check Point Software Technologies Ltd
The company delivered solid financial results this quarter, exceeding projections. Revenues rose 7% to $627 million, while non-GAAP EPS increased by 8% to $2.17. This financial performance was supported by a 10% growth in calculated billings and a modest increase of 2% in deferred revenues.
The company's key product lines demonstrated strong momentum. Infinity, the flagship product line, showed remarkable double-digit growth in revenue and bookings. Large multi-year deals, including some with eight-figure values, further underscored Infinity's market traction. Additionally, the Quantum Force gateways started showing robust performance post-launch, contributing to overall growth.
From a geographical standpoint, the company achieved double-digit growth in new business annualized bookings across all regions. These bookings are expected to convert into revenues in upcoming quarters. The public sector also emerged as a significant growth segment, driven by various government agencies adopting the company's solutions.
Gross profit stood at $557 million, maintaining an 89% margin. However, operating expenses increased by 11%, mainly due to the acquisition of Perimeter 81 and heightened investment in sales and marketing. Despite these costs, net income grew by 4% to $246 million.
The company also expanded its stock buyback program, repurchasing $325 million worth of shares, and announced plans to extend the program further. Operating cash flow grew by 5% to $200 million, and total cash balances, including marketable securities, reached approximately $3.1 billion.
A significant leadership update was the announcement of Nadav joining as the new CEO. Nadav, known for his work in cyberspace and ventures, is expected to bring a fresh perspective, particularly around customer engagement and innovation. This leadership change is anticipated to energize the company's growth and strategic direction.
Looking ahead, the company's projections remain strong. Revenues for the next quarter are expected to be between $615 million and $650 million, with EPS projected to range from $2.19 to $2.29. The focus on AI-driven cybersecurity innovations is set to continue, enhancing the company's competitive positioning.
Check Point Software 2024 Second Quarter Financial Results Video Conference. I'm Kip E. Meintzer, Global Head of Investor Relations. And joining me today, our Founder and CEO, Gil Shwed; and our Chief Financial Officer, Roei Golan.
Before we begin, I'd like to remind everyone that the conference is being recorded and will be available for replay on our website at checkpoint.com. [Operator Instructions] During the presentation, Check Point's representatives may make forward-looking statements within the meaning of the Securities and Exchange Acts of the early 1900s. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Factors that could cause the actual results to differ materially include, but are not limited to, those discussed in Check Point Software's latest filings with the Securities and Exchange Commission. Any forward-looking statements made speak only as of the date hereof, and Check Point Software undertakes no obligation to update publicly any forward-looking statements except where 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 reasons for our presentation of non-GAAP information. If you have any questions after the call, please feel free to contact Investor Relations by e-mail at kip@checkpoint.com.
Now I'd like to turn the call over to Gil Shwed.
Hi, everyone. Very, very excited to be here today with both, I think, very good results that we have and some exciting news. Before I move to Roei and let him share a little bit about the financial results, let me speak a little bit about the exciting or the big news that we have today, and that's the appointment of Nadav, will be effective December.
And we've concluded a very thorough search, looked at candidates around the world, met a lot of very good people, very experienced people. And I think that we found the perfect candidate, and I'm really excited about it because I know Check Point for me, it's like a child, and passing that responsibility to somebody else, really need to find the perfect person. And I think that we found the perfect person.
For those who don't know Nadav, he became the last 10 years, he established teammate. And what he did was much more than being like an incubator or a VC for start-ups. He really established himself as a key leader in cyberspace. He's probably the most well-known amongst CISOs around the world, built a huge community of CISOs that consult with him, that work within, that is able to work with him, and I think it's a huge asset.
And he has a lot of vision, experience in fiber, establishing over 17 cyber companies. So definitely knows all the different aspects of cyber and how we can grow and where we should look for. Worked with all the industry players at any level. And he has a lot of experience, both in the public space and not in the public space.
Again, I've been working with -- I know Nadav for many years, I've been working with him and spent many, many dozens of hours in the past few months. And there is no better choice. I'm very honored that he decided to join Check Point. I feel that we can work together and he can lead Check Point to the next phase, next phase of success, growth, innovation. And I think -- I'm very excited to work with him, and I think that my management team should be thrilled to have such a leader.
So that's the big news of today. And with that, we can switch to Roie to go through the financials, which actually are also pretty good. And then I'll give another business update. And I think you'll see that we have some very exciting and good news today. Roei?
Thanks, Gil. One moment, I'll show my screen. So as we mentioned -- first of all, thank you, everyone, for joining the call. As Gil mentioned, we had a very good quarter.
We start with the revenues, revenues and EPS. Revenues grew by 7% to $627 million and $5 million above the midpoint of our projection. Our EPS grew by 8% to $2.17, non-GAAP EPS, and $0.02 above the midpoint of our projection.
Moving forward to the deferred revenues and billing. So deferred revenues grew by 2% to $1.880 billion, while our short-term deferred revenues grew by 3% to $1.342 billion. Our calculated billings grew by 10%, double-digit growth, to $620 million, while our current calculated billings grew by 7% to $622 million.
I think this quarter, we did see -- we mentioned it a few times also in the previous quarters, we did see very strong billing that came, first of all, from strong performance in our business. And second, the Infinity. Infinity we do see a lot of -- we did see a lot of utilization of allowances from Infinity business. We do see more bookings from Infinity. And that also drive the growth that we've see in the biz.
In terms of product and subscription revenues, we are in double-digit, 10% growth, higher than we had in the last few years. Again, we do -- we can see the turnaround that we've seen since the end of 2023, and we hope that would show a continuing and consistent growth, double-digit growth, in the next few quarters.
In terms of Infinity, I mentioned Infinity, and Infinity is doing very great. Yet another great quarter, both in terms of bookings and in terms of revenues, a strong double-digit revenue growth. In terms of booking, Gil will discuss it later in this slides, but we had a very nice 8-figure biz in Infinity. So again, very strong performance from the Infinity.
In terms of revenues by geos, so we can see here the distribution. It's important to say that, in terms of new business annualized bookings -- not revenues, new business annualized booking, all the geos grew by double digits. So that's very important. So in terms of revenue, it usually comes a few quarters later, it transfers into revenues. But again, we did see another quarter with double-digit growth in new business annualized booking.
In terms of P&L, another strong operating performance. Our gross profit was $557 million or 89% margin. Our operating expenses increased by 11%. That was mainly driven by additional -- by Perimeter 1 acquisition that we had last year. And remind you, we did the acquisition of Perimeter 81 in Q3, so there was this -- this quarter, we had additional expenses that are not included last year in Q2. So that was the main and, of course, additional investments that we've done mainly around sales and marketing.
And then, the net income grew by 4% to $246 million, while our EPS grew by 8%, non-GAAP EPS, to $2.17.
On July 11, we announced the expansion of our $2 billion to our buyback program, and we [indiscernible] a quarter. So again, we keep doing the buyback, we expanded the buyback. So again, something that we feel very positive about it.
In terms of cash flow, our cash flow grew by 5%, our operating cash flow, grew by 5% to $200 million. As I mentioned, the buyback, we did another buyback of $325 million, buyback of own shares. And our cash balances, cash marketable securities and deposits amounted to approximately $3.1 billion.
To summarize before we move to Gil, very strong financial results. Revenues and EPS above the midpoint of our projections. Our quarterly revenues accelerated, maybe double-digit growth in product and subscription revenues, and another quarter with strong Infinity business and Harmony Email another strong performance by Harmony Email becoming more and more significant to our business. And strong profitability with growth both in EPS and operating cash flow.
Gil, your turn.
Thank you, Roei. And once again, I'm happy be back again. Let me go some of -- repeat some of the highlights that Roei shared. So in terms of the business, great results, revenues and EPS in the upper end of our projections. Double-digit growth in products and subscription revenues. Strong double-digit growth in Infinity, which is all good. I'll show you a little bit later in the presentation. We had some very large 8-figure deals. We had some very large Infinity deals. We've continued to see a strong performance of our e-mail sector. And the new Quantum Force set of gateways, which is the core of our business, also started to show some good signs and takeoff of the new models that we had, what we call [ Force ].
So let's start and review some of the news. First, look at logos that embraced the Infinity platform from Check Point, which is not all the logos that we had this quarter, but it just shows you a tip of the iceberg how Infinity wins in different sectors. And what you can see here is the different geos, Spark from New Zealand, New Zealand's largest telecom provider. Nasdaq, don't need to introduce Nasdaq before from the U.S. Cathay Pacific, another airline that buys into the Infinity platform and seize the value. And [ PPT ] work [indiscernible] pension provider from Europe, less known name maybe, but also very important and shows that Infinity can add value in every sector in every category.
But this is not even the largest deals of the quarter. Actually, this year, this quarter, we had some very, very large deals. Three of them together are $130 million in bookings. Here, we're talking about total contract value, which is a multiyear deal. But still the commitment that we are showing to customers and the commitments that our customers showing to us with 3 deals that are combined $130 million is amazing.
These are not just global 500 companies, 2 out of the 3 are actually global 50 companies. And again, they like the value, they like the security and show their long-term commitment to work with us, to continue to us. All these deals, they've expanded their installed base, they acquired more products, and got to use more of the Check Point technology. So we are very, very proud with those deals, especially as they came this quarter.
Another sector that we are seeing a lot of success is in the public sector. And the public sector is every government agency and the huge amount of [indiscernible] around the world. This quarter alone, we had 92 government agencies in 32 countries getting more and more of the Check Point platform. And you can see it goes from Australia to Asia, to Middle East, Africa, many in Europe, and then going left into South America, Central America and North America.
I think this is a very good sector, a sector, by the way, that requires a lot of efforts to win. We need to prove the superiority of our technology. In many cases, it's also very competitive on other business terms. And I think winning that makes us very proud. So it shows the potential in different spaces that we have.
Moving a little bit to the technology side. And I think we said with a big focus of what everybody is doing in the world, but definitely what we're doing is around AI. And AI everywhere delivery, security and simplicity. So this is showing some of the AI innovations that we had. AI Infinity Copilot doesn't even appear here as new because we launched it at the first quarter in our CPX conferences, but it's still very new. How AI can assist security admins to manage their Check Point Infinity infrastructure.
ThreatCloud AI, we have 4 new threat prevention engine over 50 by now. The CloudGuard family, new AI-powered engine to fully automate web application firewalls. Again, another growth sector for us and a new one. And last but not least, it hasn't come out yet, which is really new and will come out in the coming weeks, is a new product called GENAIProtect, when we will actually show customers what AI products their users are using.
It's actually pretty amazing because there is hundreds of AI products that an organization -- the employees of an enterprise organization can use and are using. And we can show that, control what people can do from the organization, and especially which content can be exploited. Because one of the major issues with using AI is not just using different tools, but also which information are we exporting from the organization to the AI.
So our organization will be able to set policies of using AI applications. So this is also something very, very positive. It's coming. And again, this is not the end. We will come every quarter with new AI innovation to transform cybersecurity into the AI generation.
So if I need to summarize, I think we had a strong quarter. I'm very thrilled with the announcement on Nadav, the new CEO. He will start in December. So we have a few more months to continue. And I think Nadav will get -- every week, will get more familiar with Check Point, so he can start his leadership and his CEO role here with the knowledge and the energy that's needed.
Q2, above the midpoint of projection. Infinity, continued strength, and some of our largest deals are not even Infinity, some of them are just using our gateway using our network security, the $130 million of deals that I mentioned. Double-digit growth in products and subscription, which is a very positive trend. And continued new and innovative technologies in Quantum, in AI, in Harmony, in the CloudGuard, continue that trend.
So I think we are very thrilled with what happened so far.
A little bit about projections for the next quarter. So our projection remains within the range that we said in the beginning of the year. So far, the first half was slightly even on the high side of what we expected. I truly hope that the second half will be even better.
This time, we're starting the projection a little bit early in the quarter, so we had limited data about the quarter pipeline and so on. But still, the projections are pretty healthy, within the ranges. Revenues are expected to be between $615 million to $650 million, EPS between $2.19 to $2.29. GAAP EPS is expected to be $0.43. And again, full year projections remain unchanged, or definitely within the range, maybe slightly towards the upper half after 2 quarters that were slightly better than expected.
So thank you very much for listening, and we'll be very happy to hear your questions and answer them.
All right, ladies and gentlemen. First up for the Q&A is going to be Joseph Gallo from Jefferies, with Shaul Eyal from TD Cowen to follow.
Gil, congrats on finding a new CEO and the next guardian of your child. Can you just talk us sort of why -- a little bit more why Nadav is the right man for the job? Obviously, this time line was on the quicker side, so he must have checked a lot of boxes. Where do you expect his style to be the same as yours, and then where do you expect the biggest changes, particularly on the go-to-market side?
Okay. So first, Nadav and me are very, very different in personalities. Nadav, I think, is much more outbound, has amazing charisma, is an amazing leader. And I think that will complement very, very much what I can do -- I can help, and he can take Check Point to exactly where we need.
I don't know how familiar you are or everybody on this call, not just you, personally with Nadav, when we meet today with CISOs in the industry, every single CISO knows Nadav, mentions Nadav. And building that connection in the last few years is an amazing achievement, which is something I follow for the last 5, 6 years. And Nadav has done a tremendous job on that.
I think Nadav knows how to both -- know how to communicate extremely well outside specifically with our target audience, the CISOs and the C levels in different organizations. I think he will know very well how to motivate our internal team. He has also a very good track record with that, working and motivating people inside. And I think, again, he's very different than me, and that's exactly what I was looking for. I was looking for something to complement and augment the skill that Check Point already has and the skills that I have, and I think I found the perfect person for that.
All right. Next up, Shaul Eyal, followed by Adam Tindle from Raymond James.
Congrats on results. Gil, product revenue came better than expected. The overall picture seems to be improving. Do you see Check Point as regaining share in the network security arena? Or is it coming from different market categories? And maybe just a word about the 3 8-digit wins. Are these replacements or greenfield opportunities?
I'll try to answer. So first, I think -- again, I think it's early to say that we are gaining a lot of share, but at least in the last few quarters when I watched our results versus competitors, it seems that we have growth stability to growth in the core network security, and some of our key competitors had a decline there in the last few quarters. I'm talking about new business, new deals, new gateways. Subscriptions are stable and growing and enjoying what we did in the past. So I think from that perspective, it's a positive one. It's still the tip of the iceberg because I think we can win a lot of market share in network security, and I think there's plenty of potential in that core market. If we're talking about the large deals that I mentioned, if it's displacement. It's not displacement, it's existing customers. But a few of them, I do believe but we are taking share, customers that have been dual vendors and shifted big share from other vendors to us. So it's deals that we've been working on for a long time. And they represent the commitment. It's not -- again, it's not just easy -- or not easy. It's not just simple renewal deals. It's deals with a lot of expansion, and again, in many cases, displacement of some competitive products.
Next up is Adam Tindle, followed by Tomer Zilberman, BofA .
Okay. Congrats on your results. I wanted to ask a little bit more about recent industry events and CrowdStrike and the headlines, obviously. You've been in the industry a long time. I wonder if you might provide any reflections on this event. And then separately, there's a view that this may cause freezing of spending. I know you mentioned when you were giving your guidance, it's a little bit early for you to be recording. But any expectations or evidence of that freezing that you've built into the guidance?
I don't have too much insight if this will cause a change in behavior. I think the need for security is huge. I think what we've been seeing consistently in the industry in the last few months is escalating level of risk, just to be super clear.
And I think when actually you look at the challenge, first, what happened with CrowdStrike has little to do with cyber, it's more about automatic updates. It could have happened to a non-cyber vendor with some automatic updates.
Now there is a big, by the way, when I look at it both as a customer and as a vendor, there's a big challenge there. Because in the past, some organization where very careful not to let automatic update and to check automatic updates, which, in many cases, can prevent this type of damage. On the other hand, these days, you see the level and the timeliness of security threat and you realize why you need automatic updates, why there is a new -- there's dozens of new CVEs every month, critical CVEs. CVE is the new threats that are discovered in critical software, all types of software.
And by the way, if you look at the number of threats that are being identified, growing. And the hackers are learning how to exploit them very, very quickly. And that's where you need the automatic updates, because you don't want to leave weeks and months when you have known vulnerabilities that the entire world knows about it and you are vulnerable. And that's why automatic updates are important.
So there is a clear challenge in the industry. I hope everyone will learn the lesson, how to, on one hand, do more automatic updates, on the other hand, make sure that the quality of these automatic updates doesn't cause such damage and [indiscernible]. I think we are all humble in our industry and we're learning from that. That's what we need to do.
All right. Next up is Tomer Zilberman from BofA, followed by Dan Ives from Wedbush.
I'm on for Tal Liani today. Just wanted to ask, you talked previously about the opportunity for new business bookings to support, I think, revenue acceleration and maybe reach the top end of your guidance. Can you talk about any updated thoughts around that from last quarter trends?
So I'll take it. So I think we mentioned that also this quarter, we did see strong new business bookings. We did see double-digit growth, same as we mentioned also in the last 2 quarters. This is the [indiscernible] that we talked about from Q4. And also this quarter, was a strong performance. We did see strength in the new business. And that, in the end, will -- we should translate into growth in revenues.
Again, it needs to be consistent, it should be more than 2 or 3 quarters. But in the end, if we're going to be able to sustain this double-digit growth in new business, this will translate it into higher revenue growth.
Maybe just to double-click on that since you said you need to see a couple of consistent quarters of that. Does that mean that we should consider the back half to be more in line? Are you seeing less opportunity now than you saw maybe last quarter in terms of reaching the higher end of the guidance call.
No. I mean we're still positive also on the second half of -- I mean we are still positive about the second half of the year, very positive about second half. We see the pipeline. Gil mentioned that it's still too early for the third quarter because we announced this earnings a bit earlier than usual, but still, the pipeline looks healthy, looks good. And mainly for -- even for the fourth quarter, it even looks -- even looks better. So I think we feel positive about the second half of the year. And hopefully, we'll be able to show to be in the upper end of the guidance. But again, too early to say.
And I would just add to that, I'm super positive about the second half. Q3 is always kind of a sleepy quarter and you kind of look and say, what's going on, because everybody is on vacation and everybody is afraid that the customers will be on vacation and even the deals that we will want will move. At the end, by the way, all Q3s end up pretty well because, at the end, the world continues to move.
If I look at the indicators that I have for the full year by our sales force, I think we are mostly very positive. Higher level of engagement, higher level of pipelines and so on. So I mean, I think over the last 1.5 years, our commercial organization, and Rupal did a very good job establishing better cadence and better process and better measures. And as far as I see, this process at the macro level, it's improved significantly.
All right. Well, it looks like Dan Ives is on a TV show, so he's not going to be making it in today. But we have Gabriela Borges from Goldman Sachs, followed by Rob Owens.
I'll follow up on the macro question from earlier. Gil and Roei, I'm trying to reconcile some of the positive company-specific comments that you're making about pipeline. With your comments from last quarter on overall budget still being generally tight and under pressure, how should we think about it from a macro standpoint, if 1H for the macro level was coming in a little bit under pressure, again, [indiscernible] comment, not a Check Point comment, could we actually be [ framing ] up for a stronger than usual budget flush in second quarter -- in the third quarter, second half of the year?
First, again, I'm always saying predicting the future is always -- there is a big risk, a big unknown in that, and that's an art I don't know. We've seen years when -- like every year, we see a budget flush towards year-end, maybe in my career, except 1 year, which was towards the end of 2022. And that's the only time I didn't see a budget flush in December. I do hope that this year will be a very good year. It started when actually the entire industry was under pressure and budgets were tight, when we have actually seen pretty big growth in the first 2 quarters. I just want to be super clear. The rest of the industry reported about pressures. We saw these pressures in 2023. In 2024, we started by getting out of these pressures.
I do hope that, therefore, that the indicators that we are seeing will mark a good second half. But that's not even the macro. That's the short-term 1 or 2 quarters. The bigger trend in our industry, every customer that we meet with, whether it's the -- not just the CISO, which obviously cares about cyber, but the CIO, the CEOs, every company, we all believe that more cybersecurity is needed. We also believe that it doesn't go without challenges, how we can make the products collaborate, how we can create things that are less vendors, more unified architecture. How do we fight the future of risk? There's a lot of challenges in our industry.
I do think that we are super well positioned to fulfill the needs of the customers and to take advantage of these trends. But no doubt in everybody's mind that cybersecurity remains a high priority. And even when times when people are speaking about challenges in IT, cyber remains the only area that people invest in.
All right. Up next is Rob Owens, followed by his twin brother Hamza Fodderwala.
I was hoping maybe you could touch on [indiscernible]. I know that Roei touched on it from an OpEx perspective and driving some of the incremental costs year over year. But what about from a revenue perspective? Where is it relative to your expectations? How additive was it to the quarter? And what are you seeing competitively on that front?
I think this is a very important area for us for now and for the future. I think in terms of business, it continues to operate and deliver results. But our main focus is actually integrated into our main platform. Unlike, for example, our e-mail business which can be sold as a complete separate product or add-on products separate than the network security, so customers do get the benefits of the collaboration and the better security engine and so on.
But the buyer and the products are not the same. The entire SASE SSC solutions needs to be tightly integrated into the same network security platform. And most of our efforts today are about integrating them.
As far as I understand, all these R&D efforts are on plan. We plan to demonstrate to be ready to show this super-integrated platform that I believe no other vendor has, say, integrated network security, remote access security, network security from the cloud, the network security in a hybrid mode and on-prem, all working together. I think it's on plan, and the R&D teams are doing their job.
Next up -- followed by Brad Zelnick.
Gil, congrats on appointing the new CEO and for the strong results. I think if we step back a little bit, it does seem like there's a lot of things that are inflecting at Check Point. You just had double-digit billings growth. The channel feedback has been more positive lately. You launched a number of new products. And now you appointed Nadav as the next CEO, who as many people know is very well respected in the venture community, has had a lot of successful exits recently with [indiscernible] and others and likely helps Check Point a lot on the M&A front. So my question really is when you talk to Nadav about Check Point over the next 5 years, and you said he's very different from you in terms of style, are we thinking more of a radical transformation or building on the existing strategy that you've been executing for the last year or so?
First, I think it's too early to say. I think Nadav will join, he will learn, he will provide his experience. I think we've already spent a lot of time together. So I think we will have bigger changes and, hopefully, I'm pushing for bigger changes.
But I do think the Check Point built an amazing foundation and we should use that foundation. That's the strength that we have. We have loyal customers that love us for many years. We have quality products that people love. So it's not that we need to take it to a different direction. We need to strengthen the things that work and augment them with additional things.
So Nadav has these ideas, I have my ideas. So far, these ideas actually coincide quite well. So we are -- so I think we are -- and again, coincide means that some of them we already committed in Check Point and we are doing well. And some of them, we still need to think about them and analyze them. And I think it's too early to say which direction we will choose.
But I think we will do more. And I think in every respect, in innovation, in go-to-market, in M&A, I think -- I'm looking to energize and do more in Check Point.
All right. Next up, we have Brad Zelnick followed by Roger Boyd.
Great. Congrats guys on all the success. I don't know for Gil or Roei. It's good to see the continued investments in sales and marketing and the [indiscernible] clearly paying off. How should we think about where we are in the go-to-market investment cycle? And can you give us some color on sales versus marketing, maybe direct versus indirect? And if anything structurally is changing in terms of channel rebates or anything else that ultimately ends up on that line?
Roei, you can try.
Yes. So on the sales and marketing investment, so we keep investing. I think we keep buying sales -- we actually grew our sales force in the last few quarters. Again, not in the same pace that we've done 1 year ago, 2 years ago. But we're investing a lot on that. We're going to continue. I think that in the end, we see much better productivity from the sales force. Because as we talked a few quarters ago, we mentioned that we had many new sales force that joined us 12 months ago or 9 months ago, and it takes time to be productive. And we see this productivity now, in the last 2 quarters, so we've been talking about this quarter, we do see the productivity -- the much better productivity that -- from the sales force.
In terms of indirect to direct, again, we continue to invest significantly also in marketing, in direct marketing. Was part of the plan to invest more in marketing. So that's definitely also, we see the investment there, and hopefully, we'll see also the accelerated growth coming from that.
And that's, again, we see the results. And hopefully, we'll see the results also in the next few quarters. Gil, you want to add something or?
No. I think we hear good feedback from the channel partners about the new channel program. And again, some of it -- I don't think it's just financial parameters. I think it's the relationship. I think it's the flexibility. I think it's tackling the joint challenge that we have, which is providing better security to more customers. And if we do that right, I think the opportunity is huge.
All right. Next up is Roger Boyd, followed by Saket Kalia.
Gil, the partners we're talking to are suggesting that SASE interest is starting to pick up again. And as you get closer to being able to sell the full single vendor SASE SSC product, would love to just come back to SASE for a second and get your comments on the pipeline you're building, the confidence you have in selling that into the installed base, and just any update you can on when you see that starting to contribute.
So we hear similar feedback, SASE remains a very interesting area. I think customers at the end will need the unified platform. They don't want 5 network security platforms: 1 for remote employees, 1 for site to site, 1 for cloud access, 1 for data centers. They will want 1. I don't think that there's any other vendor that can supply 1. We are working on it. We've acquired the right technologies, and we're investing in making it 1.
We do make progress in selling SASE stand-alone. But the main kind of the thing that we need to achieve is that integrated platform. And I hope it will be -- we'll reach it faster than some people expect.
All right. Next up is Saket Kalia, followed by Joel P. Fishbein Jr.
Echo my congrats on bringing Nadav on board. Roei, maybe my question is for you. Can we just talk about what percentage of billings is coming from Infinity? And congrats, by the way, on those 3 very sizable deals. Can you talk about maybe how much of the $130 million in TCV impacted billings as well in the quarter?
Yes. So I'll start with the second question. So in terms of the TCV. So one of these deals actually the third largest one, effectively, billing because it was upfront billing, multiyear billing. The other ones didn't affect significantly because, again, it was upfront, 1 year upfront. So it's not something -- it's again something regularly.
In terms of your next question about the Infinity dealings, it's tough to quantify it. I would say that again, the Infinity is becoming more and more significant for the business. We mentioned last quarter, about 15% of our business is, in terms of bookings and revenue -- sorry, in terms of revenues, Infinity actually in bookings is much more than that.
So again, the thing with Infinity is that there is lumpiness and some fluctuation in the billings because it really depends on the payment terms, the billing terms. So again, this can also depend on some time on the customer needs and when he needs the product to utilize the allowance that they're buying, that they committed for.
So I think this quarter, we did see very strong demand for the Infinity, also in terms of utilization of the allowances that they had. So I think that also affected the billing. But I think, again, in the end, the billing grew besides -- I mean, the billing grew because of the strong performance this quarter.
All right. Joe P. Fishbein Jr., followed by John DiFucci.
Gil, for you, you mentioned a lot of new AI initiatives in security. Obviously, it's been a pretty hot topic. What I'm curious to know, is this driving incremental revenue? Or do you think that this is just gaining your competitive differentiation from a product perspective?
I think right now, it's competitive differentiation. It's not yet at the revenue stage. Again, Infinity Copilot, for example, it's already used by hundreds of customers, but I don't think that it even has any revenue impact by now. If we look 3, 5 years from now, I think that we can drive a lot of value and generate more revenue based on that value. .
All right. Next up is John DiFucci, followed by Ben Bollin.
Gil, it's nice to be back covering you. I remember your vision for Infinity more than 5 years ago. And the world didn't seem like it was ready for it then. And I'm not even sure that Check Point was really ready to provide it, though the vision was there. And now it's even sort of been copied by some of your peers out there.
I guess because you're hearing Roei has mentioned Infinity several times in the strength, and you have too. Is the market now ready? Is it time for sort of an inflection point in this? Or should we continue to think that this is still going to take further years for customers to evolve and just continue to grind forward towards this vision?
It's a very good question. I hope that we are more ready now than we were before, and I hope that customers are more ready now than they were before. I definitely think that the world needs it. I mean you do hear from every CISO that on one end, I want the best security. On the other hand, I do want to consolidate vendors, for example.
I do see that from security then, the fact that you have 15 or even 50 different security technologies, if they don't collaborate, you don't -- it's not only that you don't get the full value from the technology you acquired, you create the same role. Blocking a malware from getting you on e-mail doesn't mean that you cannot download it when it sends to your [ Gmail ], for example, because one is e-mail security and one is web download security.
And another one is a security to your mobile device and another one is another vector when a file can get into the company.
So I think the value that we are providing with our platform, the collaboration, the consolidation, is very, very important for our customers at all sizes, by the way. For the midsize and small ones, they can't afford multiple systems. For the large one, it's a big savings, and not only that, it's additional security. So each customer can see it from a different perspective.
How far are we in the world in that? I think we're still in the single digit of customers that actually standardize on fewer number of vendors. And I think the potential is for that to be 10x bigger or more. A big percentage of customers will standardize on more consolidated architectures.
Thank you, Gil. And by the way, I really like the combination of you and Nadav, because I know him too. So good luck.
All right, guys. We have Ben Bollin, followed by Andrew Nowinski.
I was hoping you could share any perspective you have on new logo momentum in particular and how any changes that you've made to direct and partner incentives this year may be influencing that pipeline through year-end into 2025.
Roei, do we have any data?
Yes. So in terms of new logo, we had a good quarter in terms of new logos, continuing the trend that we had also in the Q1. Actually, our business from new logo grew nicely this quarter compared to last year. And we see very nice traction in America with very nice new logos, mainly on the government side. So I think, again, a very good quarter in terms of new logo. In terms of program for channels, so we started already from, I think, the second half of last year, we have a special program for partners for bringing new logos, and together with the new partner program that we launched that gives them even more incentive to bring new logos. So I think the incentive becomes even more attractive. And we see right now, I mean, again, based on the last 2 quarters, we do see very positive momentum from new logos. Again, we think that we should bring much more new logos in terms of quantity and value. But still, we do see very nice improvement compared to the first half of last year.
I will join Roei and say I think we're seeing some good trends. I've been back doing reviews for all our different countries around the world and different areas and see what their plans. I think they all understand the importance of winning more new logos. They are doing a good job, and we can do so much more. So I'm actually -- I like this call because I see that people understand, put it as a priority. And I think we all realize that we can do more.
All right. Our next caller is Andrew Nowinski, followed by Joshua Tilton.
Congrats on the next quarter. You had a lot of positive improvements this quarter, highlighted by the large deal activity, I think. But I wanted to ask about your EBIT and your free cash flow because both had pretty lackluster growth this quarter. So I'm just wondering how you're expecting EBIT and free cash flow growth over the next 1 to 2 years as you turn the company over to a new CEO.
So I can comment about [indiscernible] about 2024, and again, I think that the EBIT -- I mean, free cash flow, we don't provide any -- actually, we don't provide any guidance for EBITDA and free cash flow. But I can tell you that we discussed -- when we gave you the guidance at the beginning of the year, this was on -- I mean the numbers are on plan in terms of operating margin, in terms of EBIT. We mentioned that it will be between the area between 42% to 43%.
In 2024 because of the acquisition that we had and the investment that we are doing around the integration of Perimeter 81, and we discussed it in the last -- we had some discussions about the product, so there is a lot of investment around it. So we knew that 2024 we'll see more investment that will cause the margin to give in this area.
In terms of free cash flow, it's really on the billing. This quarter, we -- our operating cash flow grew by 5%. Free cash flow, I think 4%. So -- and again, this quarter, we see that the billing came by 10%. So hopefully, if we can keep the trend in the billings, on the back of the billing, the free cash flow will grow also. So it really depends on the billing, and as long as we see the growth in the billing, also the free cash flow will go right.
In terms of the next 2 years, too early to say about 2025 Again, I think we have a very healthy operating margin, a very healthy EBIT margin. So we'll discuss probably 2025 next quarter or in the next 2 quarters.
All right. Next up is Joshua Tilton, followed by Gregg Moskowitz.
I kind of want to go back to Hamza's question, I thought it was very important, but maybe ask it a little bit more directly. Nadav is clearly a sales guy. He comes from a VC that just sold a bunch of portfolio companies to one of your competitors. Do investors need to expect or should they prepare for a big investment in sales force or maybe any changes to how you guys think about M&A over the next few years?
First, it's a very good question. I think I will let Nadav join, learn, understand and develop better plans. I think he's not just a sales guy. He's definitely a strategist. He knows how to work with large teams. He knows how to encourage people to innovation. And this, I think, is the real CEO material from being very rounded in his skills and what it did. Remember, he wasn't just VC the last 10 years, he had a much longer career. And even in the VC career, he's got much more involved in some portfolio companies and helping them and building them than just investing. I do feel that I, by the way, a big believer in sales and marketing. I do think that our industry, it doesn't always work that way, but at least according to my book, investment in sales and sales and marketing should have a very good ROI. An enterprise salesperson should generate $1 million to $2 million in business.
So if you look at the calculation, even if it takes a year to ramp up, in the enterprise space, it should have a very positive ROI where if we can hire and if we should hire more people as an example, and the biggest investment is hiring.
So again, I can't comment about our future plans for 2025, 2026. I can tell you that we want to make Check Point better than it was, not the other way around. But if we can grow faster, I think we will -- that's the #1 priority that we all have.
Super helpful, and congrats on the appointment.
All right. Next up is Gregg Moskowitz, followed by [ Tai Kidron ].
All right. Well, congratulations on the results and for adding Nadav as well. Roei, you mentioned that you saw a lot of Infinity utilization of allowances this quarter. Were many of these allowances expiring? Or was there some other reason why you saw more of this activity in the Q2? And then also, what are your expectations on the pace of utilization going forward?
So in terms of that, some of them is Infinity agreements that are maybe expiring next quarter. Some of them not, much related really on the demand of the customer need. I can tell you that the majority of the [indiscernible] agreements that were signed in Q1. So it's not something that's expiring.
In terms of how it should look in the next few quarters, again, the number -- the amount of allowances, the amount of Infinity business is growing every quarter. So in the end, mathematically, it should grow every quarter. But again, it really depends. We cannot control it. It really depends on the customer and on its needs. And sometimes, they decide not to utilize in specific quarters and sometimes we see more significant utilization in certain quarters. So again, it's -- that's, I think, the benefit of the Infinity that the customer likes. They have -- to have the flexibility to utilize whenever they need it.
But just to augment what Roei is saying, which is actually very positive, if most of the spending these customers have purchased in Q1 and started utilizing or utilizing more in Q2, that's the best thing to do. Customers buy because they need it. Don't buy because they have excess budget. They don't buy because they like how nice we are. They buy because this fulfills the real needs. And that's the end frame of what we do, and that's the best proof to the quality of the business.
All right. Next up is [ Tai Kidron ] followed by Peter Levine, if we can get a quick one in, Tai.
Maybe a question on the firewall business. Roei, can you give us what was the growth of the firewall business on a year-over-year basis? How do we think about the progression of quantum force within the portfolio? And maybe Gil can talk about the pricing in firewalls. I mean [indiscernible] has a refresh as well if it's firewall, any changes there on the pricing environment would be greatly appreciated.
Yes. So in terms of the firewall, we did see -- we mentioned that we launched the Quantum Force in the beginning of -- actually at the end of 2023 and the beginning of 2024. We do see very nice demand for the Quantum Force. I think we do see the sort of the product revenue, which is mainly coming from the appliances, mainly coming from the firewall appliances, we do see growth. Again, only 1%, but in terms of bookings, the booking growth grew higher than the 1% that we see in revenues. Again, because some of them are coming through Infinity. Some of the bookings for the firewall are coming for Infinity and you don't see it in the revenues yet. Sometimes it comes up, as I mentioned in the previous question we had, sometimes it can come quarter after, sometimes it can come 2 or 3 quarters afterwards. But in general, when we're looking on the bookings for the first 2 quarters, we do see a significant improvement in the demand for appliances. Again, I would say that's something that we -- that even more than what we expected because of the launch of the Quantum Force.
I can also add that in terms of the pricing, we didn't see any significant pressure on the pricing. I mean, when you're looking on the ASP, on the average selling price of our appliances, no significant change. I mean I can talk only about the second quarter. Nothing significant that we've seen. Similar discounts range. Nothing that I can comment that I see any significant change today, again, as of today on the price.
And the pricing, we used to be competitive and still competitive. It's not the tight pricing environment.
All right. Our last question, if you can make it quick, is Peter Levine. .
So maybe just to piggyback off the last one. I don't know if you can kind of give us some color, but you saw [indiscernible] hitting double-digit growth next year. And obviously, any conviction around we're getting closer to more of a massive kind of refresh cycle that you're seeing from your conversations, your pipeline, because I know that is part of the equation to hitting that double-digit number for next year.
I think we are doing a lot of things to get there, and I think we're doing it for quite some time and the indicators are positive. I think the new change in our leadership is definitely going to help and augment that. It will give people more energy and a lot more customer focus and so on. So that's a positive.
And I think if the economy will go in the same direction, I think we will have a very good -- we can have a very good year next year. If all these things will happen, that's a good question. I'm positive and I'm optimistic about that.
All right. We'd like to thank you all for joining us today. We appreciate it. We'll see you during the quarter without a doubt. And we'll meet here and probably a little over 3 months or so once again. All right. Have a great day. Thank you.