Check Point Software Technologies Ltd

NASDAQ:CHKP

Earnings Call Analysis

Robust Revenue Growth and Healthy EPS Forecasts

In 2022, the company's non-GAAP net income rose to $298 million, a 5% year-over-year growth, while GAAP net income saw a slight 2% dip, mainly due to higher amortization from acquisitions. Operating cash flow grew modestly by 3%, with strong share buybacks continuing. Revenues increased by 4% to $2,415 million with a gross margin of 89% thanks to improvements in supply chain. Operating expenses climbed 7% due to investments in workforce and acquisitions. Looking ahead to 2024, revenues are projected to be between $2.475 billion and $2.625 billion, with non-GAAP EPS expected to range from $8.70 to $9.30, reflecting a 7-10% growth. Q1 forecasts suggest revenues between $575 million to $610 million and non-GAAP EPS between $1.95 to $2.05, indicating promising starts for both the fiscal year and the first quarter.

Leadership Transition and Enduring Commitment

The founder's evolving journey reflects a strategic realignment at the helm of Check Point, transitioning from day-to-day management into shaping Check Point and the future of cybersecurity from an Executive Chairman role.

A Resilient Quarter Defining Future Trajectory

The fourth quarter was marked by solid performance, with non-GAAP operating income growing by 7% year-over-year to $309 million, and revenues reaching $664 million, slightly above the midpoint projection. A highlighted achievement was the non-GAAP EPS of $2.57, surpassing the top end projection by $0.02. This is attributed to strong demand for the Infinity platform and email protection services, as reflected in a robust operating margin improvement from 45% to 47% due to operational efficiencies and favorable currency exchange rates.

Annual Reflection: Steady Growth Amidst Acquisitive Expansion

2023 echoed stability with a 4% annual revenue growth to $2.450 billion and an impressive 14% growth in EPS year-over-year. The company's operational acumen shone through improved gross margins and a 45% non-GAAP operating margin maintained from the previous year, in spite of increased investment in workforce and acquisitions. An operating cash flow growth of 3% year-over-year to $236 million further underscored Check Point's financial fortitude.

Outlook and Shareholder Returns

Looking forward, the impact of acquisitions is expected to create a 2% headwind to 2024's operating margin. Nevertheless, the company anticipates accruing benefits from a stronger dollar and anticipates a sustained 14% non-GAAP effective tax rate. Buybacks remain a priority, with an expected average share count reduction and robust operating cash flow reaffirming the company's commitment to returning value to shareholders.

The Infinity Platform: A Key Growth Proponent

Check Point's Infinity platform is becoming increasingly significant with strong double-digit growth translating to new business, accounting for an impressive 10% to 20% of total revenue and underscoring substantial growth potential.

Earnings Call Transcript 2023-Q4

[Kip Meintzer, executive]

[Audio Gap]

Fourth Quarter and Full Year Financial Results Video Conference. I'm Kip Meintzer, Global Head of Investor Relations. And joining me today are Founder and CEO, Gil Shwed; and our Chief Financial Officer, Roei Golan.

Before we begin, I'd like to remind everyone that this 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 Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. 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 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. In our press release, which has been posted on our website, we present GAAP and non-GAAP results, along with a reconciliation of such results as well as the reasons for our presentation of non-GAAP information. If you have any questions after the call, please feel free to contact Investor Relations by e-mail at [e-mail].

Now I'd like to turn the call over to Gil Shwed.

[Gil Shwed, executive]

Hi, everyone, and I'm pleased to see you all. I want to start with this picture, and then I'll turn it into the financial results. But I've started my journey in Check Point exactly 31 years ago, just before we started the company in February of 1993. And since then, it's been an amazing journey and amazing growth, which is not over. And I just want to -- I think you've all read the announcement today that I intend to transition my role into an Executive Chairman, which means that I'm going to -- I want to be super involved in Check Point, super involved in the future of Check Point and shift a lot of my attention from the day-to-day management of the company into shaping the future of the cybersecurity market and Check Point, in particular.

I think I've gone a long way. I didn't start quite that, but I started when I was 24 years old. I've grown a lot with Check Point. I think I changed my -- I've learned a lot. I've changed my management style, and I think I'm ready for that next step, which is moving to an Executive Chairman role. So I want to thank you all for your support.

It's on -- we are not doing anything today. We're actually starting the journey. And I think starting tomorrow, we will start a more thorough succession planning process. We will start search for replacement for my current role as CEO, which will take anything from -- again, remain lucky and it will be very short, but to find the right parent, to find the right women or men that can be the Check Point CEO, can take -- usually would take anything from 6 months to 2 years.

We are all in Check Point super-energetic about 2024. I'll talk more about that in the slides later, and about what's going on. And I'm very excited to start the year and also start the journey into finding a replacement and -- in the future, and I hope it will be in the near future to step into the Executive Chairman role.

So with that, I think I'm ready to move the torch to Roei that will take us through the numbers, and then I'll talk more about the vision, the business trends that we've seen this quarter -- this year.

[Roei Golan, executive]

Thank you, Gil, and thank you, everyone, for joining the call today.

So I'm excited to be with you today and begin the review of the fourth quarter for 2023. We had a strong quarter, with operating income of $309 million, representing a growth 7% year-over-year, with a very strong operating margin of 47% -- non-GAAP operating margin of 47%. Our revenues reached $664 million, a $3 million above the midpoint of our projection, while our non-GAAP EPS was $2.57, $0.02 above the top end of our projection.

As for the full year, our revenues -- as portfolio of 2023, our revenues reached $2.450 billion, representing a growth of 4% year-over-year, while our EPS reached $8.42, a 14% growth year-over-year. Actually it's the highest quarter to have an EPS since 2011.

Moving to the revenues and other and deferred revenues and billings. As I have indicated, our revenues grew by 4%. Our deferred revenues reached $1.908 billion, representing an increase of 2% year-over-year, while our short-term deferred revenues reached $1.440 billion, a growth of 4% year-over-year.

Our calculated billing reached $862 million, while our current calculated billings reached $831 million. And same as I mentioned in prior quarter, actually since, I think, the beginning of 2023, due to our interest rate environment, we saw also in this quarter a few customers that are willing to pay upfront for multiyear deals, which was already in shorter billing inflation.

Also in Infinity deals, our billing terms are more flexible. We have much more Infinity -- the Infinity becoming more and more significant business, and the billing terms are much more flexible there. So some of the annualized bookings that we'll show you in the next 2 slides are not built yet, and it's -- but they are included in our backlog.

The remaining performance obligation, which actually is also our backlog, is approximately -- it's approximately $2 billion, $250 million -- $49 million, representing a growth of 5% year-over-year. So our revenue growth was driven mainly by subscription revenue. We see consistent strong subscription revenues growth of 15% this quarter to $266 million. This call is mainly driven by strong performance, a strong demand for our Infinity platform, our Infinity consolidated platform and the Almonemail. We continue to see strong momentum for both of them, and that's going -- that's what we see here, the 15% growth in the last quarter.

Moving into the -- something that I want to show you this quarter, we did see a real positive turnaround this quarter. I think what we've seen is something -- it's telematic that we are following, but this is the new business annualized bookings that we've seen in this quarter. You'd see double-digit new business growth. Across all geo, by the way, it's not only specific geo. We did see double-digit new business growth in all geos.

We do see the turnaround -- the real turnaround that we started to see in Q3. We mentioned it in Q4. In Q3, it was still approximately flat. In Q4, we did see a really positive turnaround with double-digit growth. And as I mentioned, we expect it to be translated into billings and revenues in the next few quarters.

As indicated, we continue to see strong adoption for our Infinity platform. Infinity consolidated platform continue to flow in an accelerated way to our revenues, with a strong double-digit growth year-over-year. In this quarter, the revenue on Infinity will keep exceeding the 10% of the total revenues, and we can find more customers -- also new customers, adopting our platform, which enhancing their needs under 1 area of product and services.

As for the revenues by geography, we saw strong demand in America. We see 42% of the total revenues came in America. It represented double-digit growth in revenues in America, mainly driven by Infinity's strong demand for Infinity there and [indiscernible] business. 48% of the revenues came from EMEA, and the remaining 10% came from Asia Pacific.

Important to say, as I mentioned in the previous slide, that also the new business bookings -- annualized booking in these geos went up double digits. So I think it's a very good positive momentum that we've seen in Q4.

And now let's move to the P&L this quarter. Our gross profit increased to $591 million, representing a gross margin of 89% compared to 88% last year. Our operating expenses increased by 4%. The increase was mainly as a result of our continuing investment in our workforce, our recent acquisition and also investment in cloud infrastructure and marketing. Non-GAAP operating income continues to be strong at $309 million, a 7% growth year-over-year and represented a 47% operating margin compared to 45% operating margin last year.

To explain, the improvement in operating margin is a result of 1.5 points better margin that we can see here. Another 1.5 points benefit from FX, $200, mainly around -- against the shekel, which offset by approximately 2% headwind related to our recent acquisition. So that's explained the improvement we see here in the operating margin this quarter.

As for the financial income, we -- our financial income this quarter reached $18 million as we keep investing in higher interest rates over time. Our non-GAAP tax rate for this quarter was around 9% due to -- up to our tax provision and deferred taxes. We do see that the tax expenses in this quarter were significantly higher than last year, but it's mainly because of tax accounting in the end.

And you're going to see it in the next few slides that the effective tax rate for the full year is similar in 2023 compared to 2022. As for the GAAP, the non-GAAP net income, it was $298 million or $2.57 per diluted share, posing the top end of our projection by $0.02 and represented 5% growth year-over-year. Our GAAP net income was $249 million or $2.15 per diluted share, 2% decrease year-over-year, and it's mainly due to higher amortization related to our recent acquisition of mainly of Perimeter 81.

Moving to our cash flow and position. So our cash balances as of the end of the year was $3 billion, same level as we had in Q3. Our operating cash flow was strong at $236 million this quarter, representing a growth of 3% year-over-year. We also continued our buyback program and purchased 2.2 million shares or $313 million at an average price of $142 per share.

Now let's review the 2023 annual performance. So our revenues, as mentioned before, grew by 4% to $2,415 million. Our gross profit increased from -- increased to $2,154 million, representing a gross margin of 89%. This is a result of significant improvement during the year in the supply chain environment, which is much better than what we've seen last year, in 2022.

Our operating expenses increased by 7% to $1,075 million. The increase was mainly as a result of our continued investment in our workforce, cloud infrastructure, marketing, travel costs and of course, the recent acquisition that we have -- that we completed in September and October this year. Our non-GAAP operating income continued to be strong at $1,079 million, a 45% operating margin similar to what we've seen in 2022.

Looking into next year and our operating margin, we need to take into account the recent acquisition that we completed in December and October that will have a headwind of approximately 2 points to operating margin 2024. So on the other hand, we do see a tailwind of approximately between 0.5 point to 1 point related to stronger dollar and weaker shekel [indiscernible] next in 2024.

So as for the financial income this year, our financial income this year reached $77 million as we keep investing higher interest rates over time. As for 2024, we are expecting to see incremental financial income every quarter of approximately $1 million. As for the tax expenses in 2023, amounted to $159 million.

And our non-GAAP tax rate as you see was around 14%, similar to what we did -- we saw in 2022. As for 2024 tax expense, we are expecting to be around the same level of 14% effective tax rate -- non-GAAP effective tax rate in each quarter and also annually.

Our non-GAAP net income increased to $997 million or $8.42 per diluted share, posing the top end of projections by -- of the original projection by $0.02 and representing a growth of 14% year-over-year. Our GAAP net income was $840 million or $7.10 per diluted share, 13% growth year-over-year.

As for the number of shares for 2024, we expect the average diluted share to be somewhere around 130 million shares, starting in 160 million in the end of 2023 and going down by the year-end to somewhere around 111. We expect to see a decrease of approximately 1.3 million shares every quarter as a result of our expected buyback. And we need to take into account also the higher stock price that means that, again, we're going to keep our buyback in the same -- in the approximately same dollar amount, but it means that we're going to have -- we're going to buy less shares if the stock price will stay in these levels.

As for the operating cash flow for the entire year, it was strong with $1.035 billion of operating cash flow. In 2023, the operating cash flow includes also $25 million related to our acquisitions upon the old facility to our acquisition, another $39 million of cost related to our hedging activity. As part of our buyback program, we purchased during the year almost 10 million, 9.9 million shares for $1.3 billion, at an average price of $131 per share.

To summarize our results, we had strong results. Revenues for the quarter was above the midpoint and EPS exceeded our projections, acceleration in quarterly and annual subscription revenues, strong performance that's driven the total performance of our Infinity and [indiscernible]. We did see a very -- real turnaround -- a positive turnaround in our business environment during Q4, with double-digit growth in new business annualized booking and strong profitability. A 47% operating margin in Q4 and 14% EPS growth for the full year of 2022.

And now I'll turn the call over to Gil.

[Gil Shwed, executive]

Thank you very much, Roei, and thank you, everyone, again, for joining me.

Let me give you a slightly discussion of what we believe and mainly what's our strategy moving forward and the differentiator of Check Point.

So just to recap some of the points we've talked about. I think, overall, we had great results in the fourth quarter, exceeded EPS, did the 15% growth in subscription, double-digit growth in revenues in Americas. And I think -- overall, I think for the year, I'm very proud that we had a very strong execution.

We started here, I just want to be clear. It sounds like everything was amazing. But now we started the year. We actually ended 2022 with what we think was a very tough economy, and customers held back on projects, postponed investments and actually the level of new business was going down.

It lasted for 4 quarters, from Q4 2022 to Q3 2023. And I think last quarter, we told you that we are seeing the signs of a slight turnaround. I don't know how much of that turnaround is a result of the economy and how much of it is the result of the great execution of the Check Point team, with double customer engagement, which led to an increased pipeline in all geos.

And I'm very glad to say that in the fourth quarter, we've seen double-digit growth in our new business -- in our internal measures. I think Roei showed you the slides. I will have it again at the end. I think that's -- for me that's a very strong indicator of the change that's happened. And I truly hope that this change will continue in 2024, and that we'll get a tailwind, not headwind, from the economy.

But let's speak a little bit about some of the wins. We talked about the Infinity platform and its importance. We have hundreds of customers now on Infinity. These are generally customers with high volume of business with us. We take our platform. We use it on multiple layers of security. And you can see here some of the names -- company, I mean, like the best names and the best brands in the world, companies like FedEx, Benetton, Bayer, Pirelli. And again, you can see here that we have it on almost every industry and different parts of the world. Very proud of that continuous achievement that continued throughout the year and throughout Q4.

I think also in terms of our recognition in the industry, you can see here industry analysts leadership. And you can see a number of leadership mentions that we got every year, 2019, '20, '21, '22, '23. And you can see that it's increasing very drastic manner every single year, which means that our products are getting better, our marketing is getting better, our security is getting better.

Customers, analysts all recognize that, and you can see the different spaces to the left, endpoint firewall, cloud network security, e-mail security, workload protection, cloud posture management, SaaS secure access service edge, XDR.

I think it's a very good testimony to the Check Point product team to be able to get into a ship -- into a leadership position in so many categories. So we're very proud of that, and I think it shows. I think for 2024, our focus is what we call the platform company.

The Infinity platform that we have, we've talked about it in the past, but it's getting more and more important and more and more focused. And there's 2 main attributes that I want to emphasize when we speak about the Infinity platform and then we'll be the third one.

One, it's cloud delivered, so many services that are delivered assisted from the Check Point Cloud. And second, that it's AI-powered, and we talked about the beginning of 2023 that -- it's going to be the year of AI. I'm going to demonstrate to you a little bit about the fact that it was a year of AI. And now we have AI very, very embedded into every aspect of our products. And I think we are pioneering and leading in that aspect of AI -- in cybersecurity and AI on the kind of products that we produce.

Last but not least, we talked about the 3 Cs, comprehensive consolidated and collative for cybersecurity, and I'm going to touch on that and especially focusing on one element of that, and that's the collaborative nature of the platform.

But let's start a little bit with ThreatCloud. ThreatCloud today has more than 90 security engines and I know how to identify block every type -- or many types of attacks. Over 50 of those engines are already AI-powered. It was 40 last year. It was 80 engines and 40 AI powered last year. You see both the number and the percentage grew that year, which means that every month, we introduced approximately 1 more -- 1 new engine to the Infinity platform, and that's a huge strength.

And what makes it a platform is that these engines can be used by many different delivery vehicles. Delivery vehicle can be the network security gateway, it can be the e-mail security, it can be the cloud security. And every engine we've -- our internal audit, almost every engine here is used by multiple delivery methods. That's the strength of the Check Point platform.

We make an investment in advanced security. These investments can then be used by the customer in multiple places, in multiple vectors. And the result is that we blocked 3 billion yearly attacks -- which prevented 3 billion attacks just last year. That's a huge number of things about that.

I've talked about the AI powered. So what you've seen in the previous slide is how it's AI powered in the back end on the ThreatCloud, but that's the big renovation for this year for the beginning of 2024. We make AI also go to the front, and we take full advantage of generative AI.

So what you can see in this demo, I won't do it, but it's generated a lot of excitement when I showed on stage last week on our CPX conference, something that would have taken an analyst anything from few minutes, few hours to analyze -- to understand why Emily Jones cannot access the SAP server in America.

And as you can see, with one sentence to our generative AI, the Infinity copilot, it analyzes the situation. It explains why she wasn't able to access. It suggests a solution either to a certain group. It asks the user whether they want to implement this change and whether they want to install the new policy, and boom, in a matter of 1 or 2 minutes, everything is done.

Now it's not as simple as it sounds because, I mean, we are all experiencing with generative AI, and we know how powerful it is. But to connect it to that system, we're not uploading all the user data to the AI cloud, we are not -- which is a huge amount of data. It's not real time. It's actually the opposite.

We taught the AI tools about all our interfaces, all our different systems around the world. Some are cloud-based and some will be even on-site. We connect it all, and with the generative AI tool, create the right calls and use to the full advantage, the Check Point architecture, the Check Point platform to make very smart moves on behalf of the users.

It can be used for troubleshooting. It can be used for policy management. It can be used to analyze security events, and it will give you advice in a second. And this is not the future. This is not what will happen in 2025. This is happening now. Customers can work with it. Customers can use it. We just opened last week to customers.

And in our CPX in Mankok, we had huge lines of customers that wanted to experiment that in our export. And many users have started registering to use that on their instance on Infinity -- on our Infinity portal.

So I think that shows you some of the things we are doing. As far as I know, we are pioneering in the industry in that, and we are way ahead of everybody in the industry in showing the use compared to our companies similar to us in that aspect.

I've talked about the cloud-delivered aspect of the platform, and I've showed you the Infinity architecture in the cloud in the middle, just to understand how much this part is really in our platform. 80%-plus of our security gateways, which is the big part of our network, already use the ThreatCloud. They already used few services from the ThreatCloud. And whenever they get the connection or whenever they get the relevant connection, they call the ThreatCloud, they consult and they ask for advice. And this is -- and ThreatCloud gives them real-time advice about how to handle a certain type of threat.

And 100% of our e-mail, endpoint, mobile and cloud workloads work with the Infinity ThreatCloud. So almost all of our customers and installations are already part in the ThreatCloud, and there is so much room for growth in that because, again, not only that we can go to 100%, but we also use more and more cloud services by each and every customer. And I think that's huge in terms of making it a true platform that is cloud delivered. So this is a pretty big part of our business, and we are very proud on what we've done with that and the value and the security that we can deliver to customers that nobody else can.

And last but not least, I will speak about the most important element, I think, that we'll focus in 2024, and that's the collaborative nature of the platform. What makes this platform unique, what makes this platform more powerful and better for every customer is the fact that actually, all the elements here collaborate.

So if we see an attack, we know how to block the attacker everywhere. If we see an attack, we see the indicator in that attack, and make sure -- for example, we see in the malicious file that the indicators that we find in the file are not present anywhere else, that we quarantine the compromised endpoint.

That we've -- if we see somebody scanning on our network, no reason we will let them complete the scan, do more scan and come from another place until they fly, send the weak link. The opposite, let's block them. Let's make sure that if we identify the scanner, we will put them in a way that they won't be able to access our network at all.

So this is a very powerful platform. Unlike other very complicated systems that exist in the market that requires many, many months of training and millions of dollars of investment, this is simple. It works out of the box. And the idea here is to unveil the power of the collaboration of the Check Point platform. And also, by the way, it's available for third-party product to every customer.

So I think we're making here the first few steps. And I think it's a very important -- it's not just a vision, it's not just the technology, it's actually technology that works and can be used by every customer. And when we see collaboration on many, many other aspects of our platform, and my focus is to make sure that we -- that all our products collaborate.

So I think when we look at all of that, the ThreatCloud AI, the brain behind that, the fact that it's cloud delivered to almost every customer and every installation, and the collaborative element of all the different elements within one customer installation and even between multiple customers through the cloud that creates automation response, deliver the best security, one need to ask yourself, "Okay, so what does it end up? Does it end up generating, delivering the best security or better security than others?"

And what I want to share with you here is a bit of that is the latest MyCom report that shows the effectiveness of that. So [indiscernible] did this survey last year, which I think we scored like 99.7%. This year we did it again. We scored 99.8%. So it's nice to see an improvement even with such numbers.

We're talking here about what's called zero-day plus 1 attacks, that exists for 1 day. So the new -- usually platforms don't know how to deal them. And we did a test for 100, I think almost 500 different attacks like that, that we're very fresh, and you can see the effectiveness. You can see who Check Point stands, blocking pretty much all the attacks and you can see that the competitors are way, way, way behind.

Now I think we all understand the difference between 70% to 100%. But it's not just 50% better, it's much, much more than that. Actually, it's almost infinitely better because -- let's understand what it means. And we asked our researchers at Check Point how many different families, types, new attacks can organization face or exist or come -- can come up in an organization way in a period of time, let's say, for a year?

And they said, like facing 177 new families like that can be very typical for an organization per year. Now let's see how many of them would be blocked by each product. And you can see with Check Point, it will be 100%. Zero attacks will get through. Nobody will be able to cross this platform that knows how to address this kind of an attack.

And you can see with new competitors. Anything from 28 to 92 attacks can get through their security. And that means that you bought up something, you invested, and yet dozens of attacks can go through your security infrastructure because we are new. And that's not what we need. We need a platform that can prevent against the known and the unknown attacks, the most sophisticated attacks, the fifth-generation attacks, and I'm very proud that that's what [indiscernible] found that Check Point delivers.

And if I quote their CEO, he said it last year, even though what you see here is the results from last week, this is very updated results from January of this year. He says basically prevention is number 1. Number 2 is the victim, and you don't want to be that victim. And I think that's what we are aiming to deliver. And I think I'm very, very proud of our team around the world that works very hard to deliver these results.

So I think altogether, if we see that. And if we see the platform, we have Quantum family to secure the network, the CloudGuard to secure the cloud, harmony to secure the workspace, including e-mail, endpoint, everything. All of them use the Infinity core services, the ThreatCloud, the play blocks, all of it and many, many other core services that we have in the middle to deliver the best security, and I'm very proud that we are able to do so.

So before I conclude, let me just one more thing to share with you. We've opened the year last week with our CPX Experience, Check Point Experience conference. First time in 4 years that we are doing it in full force physically. Thousands of people are going to participate in that. And we had the first one, which are kind of our pilot 1 in Bangkok last week.

1,500 people participated, very high rate of participation and even of attendance. Almost everybody that registered actually showed up, which is also a good indication of the enthusiasm. The highest satisfaction rate ever over 9, and the highest satisfaction we measure it on many, many different aspects. They were all very, very strong. It's not just the organization in the conference, it's the content, it's the relevance, it's the fitness of Check Point. And we rate even each individual session. All the sessions got very high score, which I was very proud of all the people in Check Point to do that.

And for me, it was great to see so many people after such a long time and the level of enthusiasm. It was heartwarming to see that people are truly enthusiastic and truly need for the best security. I met personally in small roundtables with -- I mean, 100 to 200 customers/partners in these days, and I got a lot of feedback.

And I mean, I'm -- again, now after COVID, it's like 4 years, but I never had such an experience. And it was an amazing experience to see what we've seen. And I hope it will mean good for the next 2 conferences that we are going to hold in Europe in 2 weeks and in America, exactly in a month from now in Las Vegas. So I think that's a good start. Sharing all the product news, showing AI in action and getting the customer to participate in that.

So if I need to summarize, we finished -- we started 2023, and you see it here in the graph, with a very challenging market condition. And despite those challenging conditions, I'm very proud with our team that was able to produce good results every single quarter.

We finished it with a very strong finish, turning into double-digit growth in new business, which is my main indicator to the health of the business, driven by the momentum of Infinity strong profitability, 47% last year, 45% for the year. And I think I'm very proud of all the innovation that the Check Point team did in 2023 that we'll deliver now in 2024, again, AI-powered and cloud delivered. So -- I mean, I think it's a good summary, and you can see how enthusiastic I am for the future of Check Point and with our team.

And before I open the call for your question, let's just quickly go through our projections for 2024 in the first quarter. You know my regular caveat, that you cannot predict the future. But despite that, I'm always sharing our projections based on what we see in our [indiscernible] line, with our sales force and a little bit of the market trends.

And so I'm ready to share the 2024 projections and the Q1. So let's look at 2024. Revenues are going to be in the range of $2.475 billion to $2.625 billion, which means growth of 6% in the midpoint and 9% growth in the high end. Non-GAAP EPS is expected to be between $8.70 to $9.30, 7% growth in the midpoint, 10% growth at the high end. GAAP EPS is expected to be approximately $1.70 less than that.

And I think this is a pretty good numbers that we are starting with. I think Roei also indicated the challenge. It's not a challenge I think. If you look at the EPS, I think it's very healthy and it's great numbers. But with the number of shares not declining in the rate that we anticipated, thanks to you guys and thanks to the increase in share price, so I think it's a good phenomenon.

And let me maybe focus last slide on the first quarter and the projection there. Revenues are expected to be between $575 million to $610 million, 5% growth at the midpoint and 8% growth at the high end. And non-GAAP EPS is expected to be between $1.95 to $2.05, 11% growth at the midpoint and 14% growth at the high end. GAAP EPS is expected to be $0.44 less.

And again, I think this is going to pretty healthy numbers to start the year. And I hope that all the effort and the trend that we've seen in customer engagement, building pipeline, technology pipeline, products that we are launching and hopefully, with some help, some tailwind from the industry and from the economy, we'll be able to translate that into these numbers, and maybe even better numbers.

So thank you, everyone, and I think we are ready to open the call for your questions.

[Kip Meintzer, executive]

All right. [Operator Instructions] So our first question is going to come from Adam Tindle at Raymond James, followed by Patrick Colville from Scotiabank.

[Adam Tindle, analyst]

Gil, I just wanted to start with your announcement, and congrats on many years of building such a strong, profitable company. But I guess I'd like to start asking why now? It sounds like, based on the initial guidance, we're at a point of acceleration at Check Point.

So why was this the time to make that announcement? And secondly, the characteristics that you'd be looking for in a success or the key vision items that you and the Board would like to see?

[Gil Shwed, executive]

Okay. So first, it's an excellent question. I think there's no good time to do these kind of changes. And I'm struggling with that question. I mean, people ask me, when are we going to move on? When are we going to do something else for approximately 27 years now, almost since we went public?

And I think my answer was pretty straightforward every single year. I like what I'm doing. I like Check Point. That's my life mission. I want to stay here and I want to make it successful. Of course, when times are tough, you always ask yourself, maybe I should do something else.

But then -- again, it's a time -- you say, times are tough. Then I need to be here. I need to make sure Check Point is successful, and it's not the right time. And in the last few months, I would say, I've been struggling again with that question.

Now again, I'm fully committed to Check Point. I intend to stay in Check Point and work at Check Point. So don't get me wrong. I'm not going away. Check Point remains my life mission, and I like what I'm doing. And I think you see in everything I'm doing and what we have.

And I finally got to the decision to announce it now and start the process now, I think, last week when I saw that everything is working and everything is [indiscernible]. The products are delivering. The results are excellent. The trends that I've seen internally in the fourth quarter were excellent.

And again, I did last week because I met the people in Bangkok in CPX, and I showed -- I've seen the level of enthusiasm. And customers -- actually I was even more encouraged when I saw even prospects that came to the conference and wanted to hear about Check Point.

And I said it's the top and that's the time to start the process. Now remember, I think it's important to understand we are just starting the process. We haven't started the search yet. So it takes time. I wish we will be able to find somebody very quickly, but these processes usually takes between 6 months to 2 years. So I'm not -- again, I'm here. I'm staying.

And once we identify the right person, I will work with her or him to do the right passes of the torches, and then I intend to stay here. Executive Chairman means it's not just the title, I want to stay at Check Point, I want to dedicate more time and I want to select the subjects that I'm working on, whether it's the future of cyber, whether it's new security technologies, whether it's making everything a Check Point platform work and tick and simple like -- I would like it to be.

Whether it's meeting more customers, partners because it will give me more time to hear them and understand them. And maybe it's supporting the management, which is -- by the way, maybe the last point that I didn't mention about the timing is the management of Check Point. I think we had an amazing team that runs the business. I mean it gives me the comfort that Check Point is in good hands. And I think that's maybe the most important element when you think about that. So I think that's the explanation for the timing.

The characteristics of the candidates. As mentioned again, we are starting the process, and we will refine that. I would look for somebody that's very passionate about cybersecurity. I think what Check Point stands for is the best security. So I want somebody to promote that value, care about it, understands that and so on. So that's one.

I would look for somebody that has many Check Point characteristics that -- I mean can -- detail-oriented, understands the big picture, understands the details and so on. But I would look for somebody that's very outbound, that's very sales-oriented, that can go out and meet with customers and partners and travel the world and represent Check Point in every step of the way.

We have people like that Check Point. We have strong leadership today at the top levels of the company. But you can always do more in that. The opportunity that we have is huge. And I think the more we get there, the better we will do.

This will be my top characteristics from a candidate. Somebody that can be a good partner for me augment my skills with other things that I think can be the -- can work with the benefit of Check Point.

[Kip Meintzer, executive]

All right. Our next questioner is Patrick Colville from Scotiabank, followed by Joseph Gallo of Jefferies.

[Patrick Edwin Colville, analyst]

Yes, just to reiterate that, I mean, Gil, it's been a real pleasure working with you. I think we can all agree, you're definitely one of the OGs of the acuity industry. And we wish you all the best in your new Exec Chairman role.

Let me ask you about the guidance. The fiscal '24 guidance is no doubt impressive. My kind of quick math suggests it's a reacceleration. Can you just talk about the inputs to your guidance? I mean touching on the product line and the kind of the subscription line as to how you got to that forecast.

[Gil Shwed, executive]

So first, thank you very much. I'm -- Roei can add, once I finish. I'll give the high level. I think what we are basing that forecast is primarily on the projection from the sales force and the pipeline that we see.

And I think the engagement that we did in 2023 -- if you remember in 2023, I spoke a lot about customer engagement and how much we need to go out and meet with our customers and prospects. We did extremely well on that, met we've doubled the amount of customers, met with 3x more prospects. And I think we want to continue with that trend.

But I think what you've translate is increased pipeline, and we do have an increased pipeline. Now obviously, just to be -- to understand -- when you do more meetings and more customers, the pipeline doesn't grow in the same percentage because the sales force, usually what they do is the low-hanging fruit.

And then it's an extra effort and lower success rate with the increased engagement, but we definitely see an increased pipeline across the board. And there is a very direct correlation between the engagement with customers and the size of the pipeline. So we are basing from that.

We are looking at the trends and the industry growth rates and the economy. I think with the economy, we see some positive signs, but we are not -- I'm not sure it's the challenge that the market has seen last year is over. We've actually seen with some of our competitors that they are being hit by the slowdown that we've seen a year ago. So it's probably not over in that regard. So that balances that from being a more optimistic outlook.

And yet, at the same time, let's remember there's a lot of uncertainties. If there's one thing I've learned from the last, again, after 30 years of business, if there's one thing I learned from the last 3 or 4 years, you can always be more surprised than you've been before. And I think we faced it in 2020. With COVID, we fenced it with 2021 and 2022, but despite COVID, the economy actually did kind of went the opposite direction and did extremely well.

We faced it in 2023, or at the end of '22. But once we exited the pandemic instead of the economy flying through the roof when everybody goes back to spending, there was a challenge. Now of course, it's your job to explain it. And I think in retrospect, we can explain all of that. But this time, almost every one of these moves is a surprise.

And even now if the situation in Israel, shows us that you can always be surprised. I'm proud that in Check Point, we had that consistent execution even with those trends. And what I wish that we will be able to do even better. That's what I'm -- I mean saying it for a long time, and I mean it.

Roei, I don't know if there's anything you want to add on the quantity?

[Roei Golan, executive]

I think you mentioned instead of things. I think, again, we are looking -- we looked on the last quarter. We mentioned it's not only last quarter, but I think the real turnaround came last quarter. It started in Q3. See more demand to our product for appliances. We see a strong demand for our Infinity, to our subscription business. And again, we feel more optimistic. Still it's a wide range, but we believe that the guidance is good. And we hope that will be in the high end of the range.

[Kip Meintzer, executive]

All right. Next up is Joseph Gallo from Jefferies, followed by Jared Poland of Susquehanna.

[Joseph Gallo, analyst]

Awesome. Gil, congrats on the 31 years of success, and glad you are staying involved with the company. Guys, great double-digit new business growth in 4Q. How should we think about it in calendar '24? And how does that correlate to billings growth in calendar '24? What is needed to drive billings growth to double digits? And can we expect that in '24?

[Roei Golan, executive]

I'll answer that, Gil. So I think -- again, first of all, Q1 was a great quarter in terms of double digit growth in new business. In the end, it also will be tied into billing. I remind you all that -- again, I mentioned it also in our presentation, we see more flexible billing terms.

I think in the market [indiscernible], we saw our competitors are offering more flexible terms in terms of -- more flexible billing terms. But in that, if we're going to see consistent growth in our new business as we've seen in Q4. And we -- I believe that also in the end, you can see it also in the billing.

I remind you also the billing duration that again, because of the high interest environment, 2023 was -- the billing duration in general was lower than compared to 2022. So it seems like it's been stabilized. So -- again, hopefully, also, we were going to see it also in the next few quarters. We're going to see also the growth from the billing, not only in the new business. And of course, we translate into revenues.

[Gil Shwed, executive]

And I want to add that I think that we should use our financial power, and the fact that we are cash reached to actually use that in a positive way, not just to win customers and to be -- but also to create more business models that are annuity-based, turn some capital investment business model into a new one.

Both because it can be -- by the way, which is a win-win because it benefits the customers that are now getting more and more used to subscription kind of model. And it's good for us because the more you create it, you get more predictable and long-lasting business. So I think -- and that again can have an impact on the short-term billings when you get things forward-looking like that.

[Kip Meintzer, executive]

All right. Next up is Jared Pomerantz from Susquehanna, followed by Tal Liani of BofA.

[Unknown Analyst]

And congratulations to you Gil, as you begin the transition to our next role as the Executive Chairman. Maybe just one for me. You guys spent some time in the prepared remarks speaking to the Infinity platform and the strength that you're seeing there.

Maybe if you could just dive in a bit further. How much of that new business strength that you pointed to would you attribute to Infinity? And how are you thinking about the go-to-market and potential shifts there down the road?

[Gil Shwed, executive]

Roei, your comment?

[Roei Golan, executive]

Again, in terms of -- it's not something that we disturbed, but I can tell you that a significant part of our new business today is coming from Infinity. It's -- every quarter, the portion of the Infinity is high. It's growing very fast. We are talking about strong double-digit growth in new business bookings.

We showed you -- in the last few quarters, we are showing consistent -- a strong double-digit growth in revenues. So it's also we see consistent double-digit growth in new business related to Infinity. So this -- so I think in the end, we expect the big portion on the annuity that will be related to Infinity will grow every quarter based on the demand that we see today and the pipeline that we see today for the whole Infinity solution.

[Kip Meintzer, executive]

All right. Thank you. Next up is Tal Liani.

[Gil Shwed, executive]

[indiscernible] to be clear. It's about 10% to 20% of our business and revenue. Just to be clear, it's not -- majority of the business in Infinity, and that means that there's plenty of room for growth as we extend the platform.

[Kip Meintzer, executive]

All right. Next up is Tal Liani, followed by Shaul Eyal of TD Cowen.

[Tal Liani, analyst]

Two questions. One is, what are the trends of new customers versus existing customers? Are you able to grow with new customers more than in the past? Can you give us kind of even last few years kind of trends or contribution of new customers?

And second, when I look at your numbers, the services are flat 2% growth a year, the maintenance piece. The subscription is growing very consistently about 15% in the year, a little bit of acceleration. The real change what we're seeing is actually in the products and licenses that are going down less than before.

So the question is, what are the underlying trends in products and licenses? And can you take us into kind of the numbers? Beneath the numbers, what -- how could this look like the next year, the next 2 years and what drives it?

[Gil Shwed, executive]

So I'd like to try and give you an answer. First, as we said, I mean, it's -- first, we are getting every product in Check Point with subscription base is growing very fast. Harmony email is a good example. It's sold as a subscription, and it's growing very, very fast. So that's a good example, but there's few others that are like that, and most of them are growing quite nicely.

On top of that, each gateway that we sell, which is a product, comes with a bunch of subscriptions. And they are also growing and there is more services like that, that are being consumed -- subscription services that are being consumed with every game.

As I mentioned, last year, we had a very tough 3 quarters at the beginning of the year. We're actually new projects. And the new business and the products were going down. And despite that, because of the strength of the subscription and the fact that 80% of our business is already annuity, we're able to meet the quarterly results every single quarter. which, again, don't take it lightly. It's not reveal, but I think that's the strength of what we have.

Last quarter, it changed. In the last quarter, you were still seeing the product revenues down, but the product orders went up, and went up double digits. So I think that's a good sign as we head into 2024. The indicators for the first quarter are positive, too.

Keeping -- in spite of an Infinity deal, the revenue recognition or the delivery of the product may take time because in Infinity deals -- in a regular deal, you buy a product, you get it. In Infinity deal, you sign up for 3 years and you get the product whenever you want. You don't have to get the product from day 1.

And actually when -- sometimes you even have the freedom to pick the products along the way. So some of that growth will take time. But the indicator is very positive. And if that trend will continue, that's a very important kind of vehicle to drive and push the growth higher into the future.

[Tal Liani, analyst]

New customers, by the way?

[Gil Shwed, executive]

Sorry, new customers. So new customers, we had a very nice jump of new customers, I think, in 2001 and -- 2021, sorry, 2021 and 2022. A big increase in new customers. Not enough. It's not a big enough percentage of our business, but it's still good numbers.

And by the way, it's on all sectors. We get a lot of small customers, especially from some of our acquisitions, and we get hundreds of very large customers on our enterprise and very large enterprise business. In 2023, despite the tough economy and despite the fact that for 3 quarters, we had a decline in new business, we had it stable. So it didn't -- it grew a little bit, but not by a lot.

And higher open for 2024. First, I hope that, again, all the efforts that we are making and the investments that we are making are going to bear fruit on the new logos and new customers, and we are putting a lot of emphasis on that as a priority for the company.

So we are focusing the sales force, not just grow the existing customers, which is always very important, but also win new logos. That's kind of one of our top 2 or 3 priority for 2024.

[Kip Meintzer, executive]

All right. Our last question is going to come from Shaul Eyal.

[Shaul Eyal, analyst]

Congrats, Gail. Maybe you can share with us some color on 7-digit transactions, government business, and with respect to the incoming CEO. Is there a prerequisite that he or she will be Israeli-based? Or could they also be U.S.-based?

[Gil Shwed, executive]

Roei, do you want to start? You choose.

[Kip Meintzer, executive]

You're muted, Roei.

[Roei Golan, executive]

[indiscernible] the 7-digit transaction in the government transactions?

[Shaul Eyal, analyst]

7-digit transaction will also maybe a word about the government for all vertical this quarter and for Gil about the incoming CEO.

[Roei Golan, executive]

We did -- so I would say that when we are looking on our large deals, the mega deals about the 7 digits to that, we did see a nice growth this quarter compared to last quarter, actually double-digit growth, both in number of deals and in dollar value.

So I think we did see a very nice trend there also in Q4. It was part of the positive momentum that we mentioned. As for the government, I think we did well in the government. Again, not -- still we can grow faster, we can do better there, but I think we are in a decent business also on the government side. And Gil, to your question around...

[Gil Shwed, executive]

As I mentioned, first, I think we're in the beginning of the process, but I will share with you openly my requirements and my preferences. I do like to conduct a global search and look for the best possible person, she or he, around the world.

It is very likely that we'd like it to be somebody that will reside in Israel. Our headquarters is in Israel. The main hub for operations on Check Point is in Tel Aviv. So I would like the person to be in Tel Aviv. That actually increases the chances that it will also be Israeli.

But -- and of course, they will need to travel. I'd like them to spend a lot of time around the world, but that would be the preference. Again, global search, best person in the world, but most likely to -- will require to reside and be part of the team in the headquarters.

[Kip Meintzer, executive]

All right. Thank you all for joining us today. We appreciate you coming and spending the time with us, and we look forward to seeing you throughout the quarter. Thank you.

[Gil Shwed, executive]

Thank you very much, everyone. Really appreciate it. Thank you.

[Kip Meintzer, executive]

Bye-bye.

[Gil Shwed, executive]

Bye-bye.