Greetings. Allow me to introduce myself. My name is Kippy Meintzer, Global Head of Investor Relations for Checkpoint Software. I'd like to welcome you to our third quarter 2020 financial results video conference call. At this time, all participants are in a listen only mode during the formal presentation, which will be followed by a Q and A session.
Joining me remotely today on the call are Gil Shwed founder and CEO, along with our CFO and COO, Tal Payne. As a reminder, this video conference is live on our website and is recorded for replay. To access the live web conference and replay information, please visit the company's website at checkpoint.com. For your convenience, the replay will be available through October 29th If you'd like to reach us after the call, please contact investor relations by email at kip@checkpoint.com. Before we begin with management's presentation, I'd like to highlight the following.
During the course of this presentation, check points, representatives may make certain forward looking statements. These forward looking statements within the meaning of Section 27A of the Securities Act of 1933. And Section 21E of the Securities And Exchange Act of 1934 include, but are not limited to, statements related to Checkpoint's expectations regarding business, financial performance, and customers, the introduction of new products, programs and the success of those products and programs, the environment for security threats and trends in the market, our strategy focus areas and demand for our solutions, the impact of COVID 19 on our business, including on our product development and sales and marketing efforts and our financial condition and results of operation. The impact of COVID 19 on our customer suppliers and business partners and the macroeconomic environment as a whole, our business and financial outlook, including our guidance for q 4 2020. Because these statements pertain future events.
They are subject to risks and uncertainties. Actual results could differ materially from checkpoint's current expectations and beliefs. Factors that could cause or contribute to such differences are contained in Techpoint's earnings release issued on October 22 2020 which is available on our website and other factors and risks, including those discussed in Checkpoint's annual report on Form 20 F, for the year ended December 31 2019, which is on file with the Securities And Exchange Commission. Checkpoint assumes no obligation to update information concerning its expectations or beliefs except as required by law. In our press release, which has been posted on the website, we present GAAP and non GAAP results, along with a reconciliation of such results.
As well as reasons for our presentations of non GAAP information. Now I'd like to turn the call over to Tal Payne for a review of our financial results.
Thank you, Keith. Good morning, and good afternoon to everyone joining us on the call today. I hope you all keep safe in these times. We are pleased with our 3rd quarter performance and our financial results, which were ahead of earlier expectations. Revenues for the quarter increased by 4% year over year, to $509,000,000, and our non GAAP EPS grew by 14% to $1.64.
Before I proceed further into the numbers, let me remind you that our GAAP financial results include stock based compensation charges, amortization of required intangible assets and related expenses as well as the related tax effect. Keep in mind that as applicable, non GAAP information is presented excluding these items. Now let's take a look at the financial highlights for the quarter. Product and security subscription revenues were $289,000,000, a 6 percent increase year over year. Our subscription revenues continue to be strong with 10% growth year over year, reaching $169,000,000.
So to update the maintenance revenues increased to $220,000,000. During the quarter, we have seen a healthy growth in our network security product mainly small, mid, and data center appliances. We have seen strength in our strategic areas. Our cloud solution continue to have strong results and high double digit growth. Infinity continues to gain momentum as we see deals closing in many new countries.
We were also encouraged to see growth in new customer deals, especially in this environment. We had strong results in a few verticals, government, telecommunication, technology, and health care verticals. With significant increase in transactions over $1,000,000. Last quarter, we launched the vast majority of our quantum appliances. We have seen a healthy transition of over 80 percent by the end of this quarter.
Deferred revenues reached $1,302,000,000 a growth of $60,000,000 or 5 percent over last year. We were pleased with sales execution in these times as we continue to see growth across our geographies. Revenue distribution by geography for the quarter was as follows. 46% of revenues came from America. 42% of revenues came from Europe, Middle East, and Africa, and the remaining 12% came from Asia Pacific.
We delivered strong non GAAP operating margin of 52%. This margin is significantly higher than last year in our original plan as a result of the higher level of revenues and the operating expenses decline. Similar to the previous quarter relates mainly to employees move to work from home and the lower travel and entertainment. Bear in mind, q 3 typically has lower level of expenses relating to vacation provision seasonality, and co op that is utilized heavily in Q4 versus Q3. Those expenses are expected to return gradually as more countries go back to some normalized business practices like travel, face to face meetings, entertainment, and partial return to office work.
As a reminder, interest rates in the US sharply dropped last quarter And as a result, the yields of our marketable securities are expected to reduce consistently throughout the years as the portfolio is being reinvested, prepaid, or sold. Our financial income this quarter reduced to $14,000,000 in line with our guidance in the previous quarter. And expect it to continue to drop 1 or $2,000,000 as we discussed before. Naturally, this reduction is also reflected in the cash flow. Our US dollar as to the US dollar, it's weakened against most currencies around the world.
This quarter. As an example, 3% against the Israeli shekel, 7% against the euro and the pound. Remember that 50% of our expenses are in non US dollar currencies, mainly compensation related, hence this weakening of the dollar is driving our expenses up. Effective non GAAP tax rate for the quarter was 7 percent and in line with our expectation. Remember that the 4th quarter, we forecast the tax rate will be around 0 as the lapse of statute of limitation expect to occur by year end as we've seen in the last 2, 3 years.
GAAP net income was $201,000,000 or $1.42 per diluted share. Non GAAP net income was $231,000,000. A $1.64 per diluted share, an increase of 14% from the third quarter of 2019. The growth is related to the higher level of income on the one hand and the continued reduction of our diluted outstanding share. As a share price increased during the last few months, more options are taken into account in a diluted outstanding shares calculation.
In q 4, we expect the diluted outstanding number to be around 140,000,000 shares. As to our cash flow, cash balances for September 30 were $3,900,000,000. Operating cash flow this quarter reached $248,000,000 similar to last year. Collection from customers continues to be very strong. During the quarter, we completed the acquisition of order security and new cloud based technology that delivers secure remote access to enterprises.
Part of the consideration is included in operating cash flow according to accounting rules. Excluding this payment, the operating cash flow increased by 4% this quarter. In February, we approved the expansion of our buyback program for additional $2,000,000,000 and up $325,000,000 a quarter. At an average price sorry. $325,000,000 a quarter.
During the quarter, we purchased 2,700,000 shares at an average price of $122. This quarter, our aggregate buyback since the beginning of the buyback program in 2004 crossed the $10,000,000,000 buy. And now let's turn the call over to Gil for his comments.
Thank you, Carl, and hello to everyone joining us today. First, I'm glad to see you all this new format I really like. I hope that you and your families are all safe and healthy in this new normal. A checkpoint, we are closing the free quarter in a virtual manner. Based on my recent discussion with our employees around the world, it seems that people generally are think well to this new mode of operation and business continues with few disruptions.
You can definitely see that in the 3rd quarter results which were better than expected in almost a ring measure. Revenues were ahead of expectation and EPS was much higher than plan, And the first is a result of our business activity, and the second is driven by the reduction of physical activity. On the business front, continue to see many irritigate with. Keep in mind that we figure include subscription where it is sold as part of the product and on the ferry. This trend is quite positive, especially given the fact that customers today are a little bit more reluctant to perform physical upgrades on
their data centers.
Which brings me to the other growth areas in our market, cloud and emerging technologies. Cloud sales continue to perform well. We added many customers and suspended our footprint within existing customers, resulting in a strong double digit growth every quarter this year. Which is coming from both our native cloud security solution and our virtual gateway in the cloud. The entire cloudguard family, the cloudguard native, include the workload, the posture management, and the cloud guard, yeah, for the virtual gateway.
The same is also true to our other emerging segments. Or beyond the perimeter or BTP business that provides advanced threat prevention for the endpoint computer and mobile devices also grew quite fast. Both categories are important in the delivery of our full vision providing the highest level of security prevention, utilizing our consolidated infinity architecture. Sales of Infinity Total Protection, our solution for a full and consolidated enterprise security also had a great result and almost doubled compared to last year. Infinity sales are still in their infancy, but I'm happy to say that I hear more and more feedback from our channel partners that Infinity is becoming an important door opener and a differentiator for checkpoint.
Last and not least, we continue to focus on new customer acquisition this quarter, we generated significant growth in this area, another good indicator, but with the future of but with plenty of future potential for growth. Overall, I believe that we have the right approach for the future of cybersecurity, real time threat prevention, protection and consolidation using one architecture. It addresses the complexity and the economics of cyber while providing much higher level of security. Our infinity architecture is powered by Fred Cloud, which identifies new threats and performs immediate prevention across all attack vectors and to all customers and solutions. Our research team continue to generate amazing findings about the state of cybersecurity.
We continue to fight against cyber threats by building our security architecture to protect the world from a potential cyber pandemic. We uncovered several vulnerabilities that could have led to such a pandemic. Earlier every quarter, earlier this quarter, we talked about the cigarette vulnerability in Microsoft DNS and active directory servers. Just this week, the NSA has put cigarette in the list of top vulnerabilities targeted by Chinese hackers. Later in the quarter, we published our vulnerabilities, other vulnerabilities that could have been devastating such as these in stock vulnerabilities allows picture on social networks to take over billions of mobile devices and a over 400 vulnerabilities, the firmware of Qualcomm mobile chipsets that power huge number of Android devices.
We see more and more mobile malware. It is a market that remains largely untapped. There are many trends in the attack landscape. 1 of which is the increased amount of ransomware attack we see. Over the past months, we've seen more than 50% increase in what's called doubled extortion, ransomware, where the attackers demand the payment to get your encrypted file.
But if you don't pay, they will publish the file. The attackers have also tuned their business model and are targeting multiple size businesses industrials to hospitals and are seeing quite a lot of success we face. We continue to invest in the future cyber addressing some of today's most important needs. Last month, we acquired auto security, a small startup that has built an amazing platform for secure remote access. The new platform provide a good basis for what's called secure access services or Sassy.
This solution will be the basis of our future remote access solution, which will provide easy and secure access portal to all type of assets, cloud, web, and data center application, remote desktop, and others. I'm really excited about this acquisition, and it's potentially in our marketplace. In the coming days, we will release our latest major software version for the year, r81. R81 provides many new capability Let me just go through the top 3 of these capabilities. First is a higher level of security with automatic AI technology that is designed to provide real time prevention against 0 day attack, what we call autonomous threat prevention in our gateways.
2nd is automatic hardware and core allocation on the gateway to optimize this operation and provide higher level of performance and security. And third is a very quick response to changing security needs with super fast policy installation down to as little as 10 seconds from minutes. Quick upgrade than many other features that continue to underscore the leadership of our management concern. When we look into the future, I believe that we're working on the key initiatives to provide the world with a safer cyber environment, an environment that is needed now more than ever. 2020 was and is a very unique year.
We've all learned the criticality of the internet and cyber infrastructure. Imagine going through the COVID 19 crisis without the internet or with internet, if it's not performing well. The crisis is far from over. We are experiencing a strong second wave of Corona in Europe with pure restrictions and lockdowns The US is still on the 1st wave and is now at the risk of facing more unrest with the coming election. And the corona pandemic has accelerated many of the aspects of digital transformation, making cyber security even more important.
So I remain very positive on the future of our market. However, with the current world trend, the level of visibility and predictability for the short term remains low. Having said that, we decided this quarter to provide guidance with a wider than normal range while reminding you but the level of uncertainty remains high just as they've outlined for you. So for the 4th quarter, we're expecting revenues to be in the range of 525 to $575,000,000. Non GAAP EPS is expected to be quite healthy in the range of $1 98 to $2 17 or 18,000.
It's actually sorry. It's actually $2 to $2.18.
Okay. $2 to $2.18. GAAP EPS is expected to be approximately 22¢ lower. Even though we pulled our annual guidance at the beginning of the crisis, our results. So far, it's been quite consistent with the guidance we provided at the beginning of the year.
So there's no change to, to make changes to the annual projection. And now I would like to turn the call over to Keith for your false call question. And once again, I will repeat the guidance in case you missed it. Revenues are expected to be in the range of $525,575,000,000, and EPS is expected to be between $2 $2.18.
Thank you, Gil. Before we begin with the Q and A session, due to time constraints and consideration of the other participants, please limit yourself to one question and one question only. If you run into difficulty, please type your question at the chat and we'll reach you. We'll address that question in later. Now for the first question of the day, it comes from Jonathan Ho, followed by Saket Kelly Saket Kalia from Barclays.
Hi, good morning and congratulations on a strong quarter. And this is a strong product revenue quarter. Can you give us a little bit more color regarding the cross sell opportunity with Infiniti Total Protect, and perhaps what elements of the platform, you know, partners are most excited about?
I think the opportunity is almost unlimited because, again, today, most of our customers are using our network security solutions and are not have not upgraded to the portfolio. I think when you look at it, when a customer looks at it trying to really get their hold on their security. The opportunity is, is really pretty big out here. I think with Infinity, it's a real good door opener, not just to come and say, you know, I have been 12 products and somebody else has 7 product, and let's talk about the product, but really outline the full spectrum of solution that's needed and speak about architecture. Now, again, We're seeing an increasing number of people that buy into it, buy the whole architecture.
We're seeing even more people that are saying, well, what's really interesting I may not be ready now to change all my security infrastructure, but the fact that you have this vision architecture allows me to buy more cloud, allows me to buy more beyond the perimeter endpoints mobile, more IoT. There's a lot of other elements we quarter. We launched a Infinity stock for a security operation center, and I think that's a great way to elevate our way through the organization and to expand the the solutions to a new and existing customers, by the way.
Thank you.
Next question is Saket Kalia followed by Philip Winslow.
Okay, great. Hey, thanks. For taking my question here, and thanks for holding the call on this format again, guys. Tom, maybe for you, maybe a little bit out of left field, but, I remember this happened a couple of years ago where Young Kapoor actually fell at the very end of the quarter and had a material impact on billings. I believe it was also at the end of the quarter this year.
So the question is, can you talk about whether that had any impact to this time And how, if at all, that could be impacting your q 4 bookings expectation?
Well, so I'll say we if you remember the previous one, the I think it was yonkipur a few years ago. We just warned you that it might have an effect, but the good news was that it didn't, if I recall. So that's because we dealt with it internally with our backup teams also all over the world, mainly in the US for the order entry. I would say right now, we don't expect any holidays to land in the next few years in the last day exactly on the end of the quarter. So I don't anticipate any effects there.
That would be clear. This quarter, you won't keep the the quarter, but we still have 2 business days. And these 2 business days were enough to, to get the right business in order. I think last time it was really the on keyboard that fell on the same day, which is for Vozudone. We're not familiar with the Oki port.
It's like a complete closure on the country. When people actually don't work. We had a stronger lockdown on the country this time, but at least we could have worked from home.
Got it. Very helpful. Thanks, guys.
Sure.
Alright. Our next question is from Philip Winslow followed by Gray Powell.
Great. Thanks so much for taking my question. You got another good quarter. A question to to Gil. I mean, Gil, earlier this year, it seemed like, I had businesses who were very focused on, sort of, call it triage and capacity whether it be VPN or call it, you know, bandwidth for throughput, but we're now we're now transitioning into, into more called strategic decisions made by by by customers about their security architecture.
Are you starting to see that? And where are you starting to see that, you know, in your in your revenue and your pipeline?
So first thing I'd say that the market is behaving relatively as expected. We see it in our results. I see it again. I'm not an expert on the entire market, but I think I've seen In generally, the IT market is suffering a small number of interruptions from the world crisis around us. I think in terms of cybersecurity, people are really speaking about the day after and what they need to do.
I'm not sure that they moved that way. I mean, I mean, on one hand, we see customers that are saying, yes, we've opened up so many things. The attack landscape on our enterprise and opening it to our vendors to our employees and so on has really increased the the surface that can be attacked. But I haven't seen yet that people have taken the step to really secure it. Now I think it's very clear to our industry that we need to do that.
That's the discussion around CISOs. That's the discussion in forums. I haven't seen it's materialized yet. And so I think again, if we look at the opportunity, the the lead, it's not even the opportunity. We are trying the need is huge.
Because we really, really opened up and put business priority, what we call business security for lunch. And now we need to bring security back. By the way, while keeping things connected, while keeping them open, I'm not talking about closing thing. I'm talking about securing them. I think it's happening slowly.
There's a growing discussion, not to be overly enthusiastic about but remember that some companies are also facing budget challenges and the economy the economy might hit the broader set customers than than we've seen so far. But I think long term, clearly, we need more security everywhere. Things that we thought will never be open are now all connected to the Internet and are now all open to external entities.
And may maybe I would just add that, again, not just looking at what happened in q 3. We saw quite a few nice infinity transact and when you look at the uplift in the ACV, it was nice to see it's not 10, 20, 30, 40%. It's more. It's growing nicely, and it's a healthy growth. It's not just a a conversion of ACV with ACV, which is similar, which which we showed as a great opportunity in infinity.
The more we'll get there, the better it will do for our customers and ourselves. And the second cloud, I think I'm not sure, but I think the largest cloud deal when it comes to a native cloud happened this quarter. So that was nice to see customers adopting solutions in above a $1,000,000 solution. Right? So that's nice to see also that move.
Alright. That's great color. Thank you very much, Natalia. I think it's appropriate that you're by the lifeguard standards to see if Alright. Thanks.
Alright. Our next question is from Gray Powell of BTIG followed by Sterling Audi of JP Morgan.
All right, great. Thanks for taking the question. So yeah, can you give us a sense as to how much the Maestro or trader. It's helping, growth on the product revenue side. And then do you see that as a, a big differentiator, versus peers going forward?
And we did see we do see it as a huge differentiator. I don't have the numbers in front of me, so I can't quantify that, but we do see more and more deals But, my asteroid is becoming the game changer. We won many, many banner deals this year when my and by the way, it's not just at the super high end. I think one of the nice is about Maestro, before we had scalable platforms that allowed customers with 1,000,000 of dollars of budget to get super high performance We've sophisticated systems. Now it's available for everyone.
So now customers that are in the mid range of the market can build a scalable architecture can add the capacity if they need to can get the resiliency that it provides because Maestro provides both the performance and the resiliency. One one nice deal about that. I'm not sure if even if it was very large, but it was sizable was a very fast highway that I mean, the highway is now secured, both secure and fast security. So that's a a nice a nice customer to see.
Got it. That's that's very helpful, Rob. Thank you very much.
Alright. Our next call, our next question is coming from Sterling Audi of JP Morgan, followed by Jolpi Fishbein of Truist Securities. Hey, guys. So Greg's question kinda broke up for me. So, hopefully, this isn't the same one.
But, Tal, in your prepared remarks, you talked about some really nice new company or new customer additions. And I'm curious what what was either the product or the use case that you saw most common in those new customer coming on board.
So I would say you can add, but first, it came from, for many different countries. So that was nice. You saw large deals. That was nice as well because typical new customers can be smaller. We saw a a few customers which are a lot.
It was actually a a pre I would call it small, but record quarter when it comes to new customers. So that was nice to see. The differentiator and every deal can be different, but I can say it's very repetitive. The Infinity vision. The Maestro is a big differentiator.
The holisticness of the approach the the the fact that we have infinity when you think of the full broad spectrum of solution that we can provide to the customers, and the quality, the best security out there when it comes to catch rate and securing you in this environment.
Thank you.
Our next question is coming from Joel Fishbein of Truist Securities, followed by Walter Pritchard of Citi.
Hi, guys. Just a quick one from me. If, Cal, if if things stay the same as they are currently Do you think that you can continue to grow, in 21 the same way, at the same growth rate you're growing currently?
Oh, you're asking for 2021 guidance? Hey. I think I was just we we just moved from no guidance to a guidance with a quite a wide range to say, we are moving forward. We wanna give you more visibility, but having said that, remember, Q Four is in terms of understanding when the markets are going for next year. Q 4 is a big quarter.
Remember, it's a quarter also that is much more affected by product because the product number in q 4 is, and sometimes 30% higher. Right? So it's a big order. We need to see first q 4 and lock you for before we even start talking about 2021.
I I tried.
A a good college schedule. Our next question is from Walter Pritchard followed by Ben Bolland of Cleveland Research.
Thanks. Dale, wondering just on the quantum appliances, you know, you launched those. I think your 80% volume this quarter is what you mentioned exiting the quarter. Can you compare how the impact of this quantum appliance, rollout has differed from prior ones? And how are you looking at that, that refresh opportunity in the coming quarters as as as drivers of of demand.
I guess you've given q 4 guide, but but that and beyond.
K. I think firstly, usually, I mean, when we head to testament when we had some places when customers weren't leaning forward, the new appliances, and then it took a while. When we had successful transition, it usually was like a 50, 60% transition over, I would say, two quarters. Now we're at 80%. So, obviously, it means that the transition is going actually better than previous time, which which makes sense.
I don't know if it has a big impact on the on q 4 or will have a big impact on q 4. On the other hand, it's, as you said, we've seen healthy growth in a client sale, which I'm happy about. It's not, you know, mind boggling growth. It's it's, but it's healthy growth, which is unique, even in the marketplace that we are today. And remember that it is impacted too by the fact that people today are minimizing the, physical changes to the infrastructure.
So, I mean, on one end, customers are trying to keep business as usual. On the other end, they try to avoid doing too many physical upgrades. So I think all in all, it means a good sign. Whether it will continue for a few more quarters or whether it was, like, a nice, you know, few percent of the upside this quarter. It's very hard to say.
Anyway, it's good.
Thank you.
Our next question is from Ben Bollin of Cleveland Research followed by Brad Zelnick of Credit Suisse.
Afternoon. Thank you for taking the question. Could you talk a little bit about what you're seeing from your customers in terms of how the work from home mix is settling out or what you're expecting. And could you talk through how you think that's influencing adoption of things like quantum in the cloud portfolio. Hopefully, you could touch on, you know, cloud dark Dome9 infinity in auto, but, that's it.
Thanks.
So I think that there is a lot around the world when we ask people, around the world. It's really varied by countries. Asia, where is the high level of openness. Some countries are really open for business. Some countries are open, but few people come to the office.
Europe is mixed, but unfortunately, the trends vary quite negative right now. It was it was opening up fast, and now there's more and more restrictions and lockdowns in Europe. Which is very unfortunate. And you guys say, I think you know better than me, the situation. Overall, by the way, when I look at checkpoint when I have very accurate statistics, in the it's about worldwide.
It's about, 16, 17 of the employees actually to the office and 80% or so remain working from home. And it varies by geo. In the US, it's a 97% working from home in Europe and Asia, it's 20, 30 percent of employees around arrive to the office. And, again, varies by country. And how does it impact our business?
I think first, it's bound to buy. It's bound to make people think more about the remote access solution, about securing that remember, it's really I mean, on one hand, we shifted very quickly to work from home on the other hand with 1000 and 1000 of connect We've opening up the core of every, you know, every trading floor and every factory to remote working. We've also opened up a huge opportunity for hacking. We've even tested and some people working from home are working from their personal home computer when they share with the kids. Sometimes there's, like, 40% of these computers that are not secured at all, not what they have insufficient level of security.
So the need to secure that is huge. And by the way, some some of the things we are seeing like ransomware cover, you see the tip of the iceberg of, actually hackers exploiting that. I think we haven't seen the full effect on that, but but in but customers will have to invest on that. On the same time, the whole digital transformation, the fact that we learn that we need to move more workloads to the cloud that we are so dependent on ecommerce that everything is now online and fewer things that are face to face. That's a very big impact.
And I think, again, I think we will see the impact starting now because the now the the good thing is that the Internet is working. And, I mean, I must say that I'm very proud to be part of the internet industry because, I think when you expect the level of change that we went this year, and the internet kept working and kept working fast. It's quite amazing. It shows, by the way, that we have capacity. So that's, which is good.
But in terms of security, we will have to invest in more security.
Alright. Thank you. Our next call our next question is coming from Brad Zelnick. Followed by Rob Owens of Piper Sandler.
Great. Thank you so much. And it's really nice to see everybody. It's also great to see the stable trends in the business. Gail, as we think about the r the r81 release, which I know a lot of customers have been anticipating, can you just remind us what impact does a new release of the OS have on the business and on the financials of the company, especially one like this with a lot of great functionality.
Like, should we think of this as helping you know, win win rates, you know, competitively or even inspiring some existing customers to, you know, come to the table and and and refresh an existing appliance? Thanks.
And I think overall it's helping the business because customer look for innovation, customer look for the business features, and so on. However, I don't think it's quantifiable in the soft in the short term because in the short term, on one hand, it may be help. It help closing deals, but also, everybody's busy with the upgrades, and the upgrade takes a lot of cycles. So that's something that we do have to worry to think about. But the sales engineers need to work more closely with existing customers and existing customers get the new version through the subscription or through the support contracts which may have So it's not generating additional sales.
But overall, I think it's positive. Again, I don't anticipate material impact or any impact on the business at the short term, and we need to manage our business correctly so we actually don't slow down new deals when we are busy with the upgrading customer infrastructure. First.
Got it. Thank you.
Our next question is from Rob Owens of Piper Sandler followed by foot Tima Boolani of UBS Equities.
Great. Thank you very much. I'll give you the easy one before Fatima comes with the hard one here. Gail, you mentioned a a 10% increase in network security gateway. I was just looking for some some color there in terms of, a, how that's trended.
And then are these capacity based upgrades, or is it an aging installed base that's being replaced at this point?
And I think it's all over, and I wish I could have, gave given you saying, you know, that great trend and everything is moving. We saw a little bit here, a little bit there. We saw some volume increase in number of gateway. We saw some different models being sold overall, it was very good. I mean, overall, I might might say that for a long time, we haven't seen growth in network security and seeing an almost 10%.
And again, it's 10% kind of the growth in our internal measures, which summarizes a lot of different aspects, some models, it's a higher growth in volume. Some model is higher growth in dollars and so on. So overall, it's positive. I we I mean, based on so far, what I analyzed, I didn't find one trend that would say, here is something that takes off and drives the entire business with it. So I don't know, Tal, if you have more color about the the analytics Okay.
Yeah.
I would say, actually, it's both. So we see some that need more capacity as people move the work more remotely. You need the higher capacity on the gateway coming in and out of the organization. And second, you have some that have an appliance over a certain number of years, and they use this opportunity to refresh it. So I think it's both.
And I think my answer is definitely is that my my My escrow is definitely a driver here because we I do see it, when we analyze the wins that they, it's a it's a differentiator. It's a nice, the differentiator in the ability to scale, start small. And then as you need to increase capacity, if you already bought the switch, the Maestro, you can add on capacity without having to throw an old one. And it's a big advantage, especially when you're thinking an environment where it is part of the discussion. Many, as you know, many companies right now are suffering under the COVID.
So if you can bring value to the customers, be it through Infinity or Maestro infrastructure that enables to increase capacity in the future without having to fill the old box, it becomes a differentiator.
Thanks. Alright. Our next question is with Fatima Boolani from UBS Equities followed by Shalool out of Oppenheimer.
Thanks, Keith. Good morning, good afternoon, checkpoint team. Thanks for taking the questions. Tom, the question is for you. You still have about 40 a little over 40% of your revenue derived from, updates and maintenance and very traditionally flavored support revenue And as I think about some of the dynamics around the adoption of the cloud portfolio and the Infinity portfolio, how should we expect the trajectory of your maintenance and support revenue to trend as physical form factors become maybe more challenging to go to market with.
So the direction is pretty much when we talked for the last few years. We said subscription, everything that we come in with, every new product, new capabilities, majority of them coming through a subscription model. So you have the cloud, the subscription, you have all the blades that we launched throughout the years, probably since 2009, 2010. All of them are subscription. And that's why you see that my major growth engines are coming through the subscription line.
So cloud is a great example. Majority of it is sitting on the cloud. When you talk about Infinity, then Infinity, it's a deal of an x dollars per a year per employee or per year sir, but accounting wise, you split it between the product, support, and subscription. So, theoretically, it's still also the support line, but because of the majority of Checkpoint product nowadays is subscription, then also an Infinity majority of the dollars are being sucked into the subscription line. Same with bundles.
Appliances, all of them are bundled. It used to be bundled with NGT. Now it's bundled with sun blast. More percentage of the product is being taken away to deferred revenues and will be recognized over the subscription. So it says the general direction It's what you've seen in the last 2, 3 years.
Subscription, hopefully, we continue to see a growth and a healthy growth. Products depends. Right now, we see a plus. So it's nice to see that especially under the pressures, of the subscription for the shipment that been taking out support. It's not it's very hard to grow unless you install this growing.
So I would say support is tougher, especially since when you also went when you get into discounted environment, that's usually the lines that get the the most requests for discount. So I would say support, I don't expect to see a significant growth. And if you remember, I even talked about it beginning of the year, and I said 0 is a reasonable assumption for the support line.
Thanks. I appreciate it.
Alright. Our next question is from Shalool of Oppenheimer followed by Brian Essex at Goldman Sachs.
Thank you. Good afternoon, everybody. Gil, you might have addressed that, indirectly. I wanna try and ask it kind of slightly more straightforward. So you've indicated COVID nineteen numbers are rising.
We are seeing we're hearing that, you know, Europe, for example, is going into some regional anecdotal lockdowns, US, you know, still open for the most part. Hypothetically speaking, do do you think we might be seeing a near term incremental, spending weight similar to the one we had seen back in the able to make time frame. Do you think these those are mostly done right now with their initial spending wave of work from home, work from anywhere, or do you think action, we could be seeing a little bit of a tailwind over the course of the next, few weeks, even months.
I think it will be a guess, but I think that most companies are okay with changing the infrastructure. We move to work from home. We know that we can do that. The next wave here is going to be about securing this work from home, and that's a longer term need because it's not about you know, like, we needed to do in March, which within 2 weeks, the entire world doesn't have to change the way the way it works. So I'm not anticipating a huge push on security in the near term based on COVID.
I'm again, I hope it will be over COVID. I hope it actually the push that we will see is that coron will go away and then then we will see, you know, the business rising up from a crisis and people do increment spending, but for the time being, I've I hope that we will remain in this stable environment because as I said, the good news, the we haven't suffered too much from the corona crisis economically. We suffered it for what I mean, but not economically. The the less good new the, I mean, the better news is that we can be over and that people will need more security. The risk factor is that the fact that the economy hasn't hurt us doesn't mean it won't hurt us in the future.
And I mean, the hostage is not just checkpoint. It all of this extra it's not the it's everyone related to us. There's nothing that I see particular to checkpoint.
And, you know, may maybe I'll say the way I look at it, even if I look at the CFO, right? So and from a company that thank you. Didn't suffer. Right? This is a privilege to be part that area.
But I can say, you know, when you started with the COVID, you moved very, very fast and you approved things just to make sure everybody's running in operation. And we also we talked about it. I talked to you about it in the previous call, and we saw some increase. It's not material in our number, but some increase in the mobile access capabilities and the VPN and so on. That was a few 1,000,000 of dollars.
I think as now, as Gil said, he stabilized that area. So actually this quarter, the growth is not relating to VPN and mobile access in this area. So it's good. It's a it's a regular growth in a way. But you see more and more companies starting suffer.
And our customers, we might not suffer, but our customers and our customers around the world are suffering depend on their size. And that can change their their pattern of, of acquisitions and the and the upgrade. So I said that's where the caution should come from, not our situation, but actually your ability to look at what's happening out there to the large market, to the enterprises in all verticals, and to see what does it mean? Because when they suffer, naturally, they come to everybody else to help them. Right?
So it's it's part of the same dilemma.
Thanks, Cheryl. Our next question is from Brian Essex of Goldman Sachs, followed by Greg Moskowitz of Mizuho.
Great. Thank you. And thank you very much for taking my call. It's a question. It's very good to see you all.
So, maybe maybe a question for Gil or Tal, whoever wants to pick this one up cloud and emerging technology, how how do you think about, disclosure for the, you know, emerging growth businesses for your purchase, maybe what we call the core business is, how how big is cloud and emerging technology? And and is there a point where it would hit the threshold where we might get better disclosure in terms of, you know, faster growth businesses recurring revenue to give you a better sense of that subscription sent a subscription portion of your business and how it's growing.
Again, if you want, I I can start and then you you can add I will say the following. Remember that I understand the need to split, but in reality, majority of the deals you can't split. It's an accounting split. In reality, when a customer buys infinity, he buys everything. So we split it between the line because of the accounting, but the customer bought full package, the same when they buy sunglasses.
It has any defect stimulation, but it has in it also 5 or 6 other blades. So the split is a bit artificial. Having said that, I can tell you that the good news that this cloud is in the subscription and in this quarter, it's around the 10%. It's past the 10% from the subscription line. So that was nice to see that.
Just to give you a bit of color.
And I think overall, I would say that depends what you count as cloud. I think there is, like, 2 or 3 layers of cloud that you come. 1 is securing the cloud, securing the customer cloud infrastructure. Second is delivering security from the cloud. And again, when you look at our industry, you see some companies that are companies that are called cloud.
Some of them are using cloud to provide the same security we provide. Some are securing the cloud infrastructure of their customers. And also, almost on every product today, we have some cloud components. So if I so we are I'm trying to quantify internally for me. I think that today, the overall cloud business that we have combining all elements is approaching 10% of total business, not just of the not just of the subscription.
And again, some of it, you can say this is actually cloud sales. Some of it, you can say this is cloud aided. And in terms of which product is it in, it's in every product. I just mentioned in r 81, we have this, what we call autonomous threat prevention, and that's driven by cloud. Now, again, it doesn't make all our gateway sales cloud set.
I mean, just to be clear, but it's now getting mixed on almost every products that we have.
Great. That's helpful context. Thank you.
Alright. Our next call is from Greg. Our next call is Greg Moskowitz of Mizuho, followed by Keith Bachman of BMO.
Alright. Thank you. I see you really sound good to 3. So I had a follow-up actually for a deal on, on cloud. And, you know, you now have a lot of products or offerings under that cloud guard umbrella.
I think Tom mentioned that this may have been your largest, ever cloud deal that was signed into Q3. So it'd be very helpful to get a little context perhaps in terms of what customers are significantly buying and maybe looking at that large cloud deal this quarter, for instance, if you could give us a sense of how that customer is deploying, checkpoint in the cloud, that would be helpful.
There's a large number of subcomponents and technologies in this cloud family, but we're 2 that I mentioned in my script, and there is the bigger one. 1 is the, what we call, cloud native, managing cloud native, and I think big part of it is what we call the cloud post or management. It's managing the native security of the cloud. That's one big piece. Number one is virtual gateway on the cloud.
It's taking gateways like we used to have physically and putting them in the cloud of the cloud cloud. Yes. Infrastructure as a service. And that's another big portion. These two portions are, by the way, very similar in size today.
So they're pretty big. And these are the 2 leading ones right now. On top of it, we're the long list of technologies that are emerging like cloud workloads, securing serverless functions and containers, delivering security through the cloud. And there's a lot of other features that we introduced to the market that are gaining share, but, I mean, I'm just if I frame it, these are the key elements. And I'm glad to see, by the way, that both are growing.
So it's not you know, customers are moving gateway to the cloud on one end, which is great. Customers are also securing the native cloud with our cloud posture management.
That's helpful. Thank you.
Alright. Our next question is from Keith Bachman at BMO followed by Adam Tindle of Raymond James.
Hi. Thank you. I'm gonna direct this to Talith. I could. Tom, I wanted to see if you could describe the trends, on two two different areas.
One is if you could think about the percent of bookings that are driven by new customers versus existing And how do you think that's been shaped over the last couple of quarters versus how you see it unfolding over the next year? So is it you know, 80 20 existing versus new 90 10. If you could just give us a little perspective on that. And the second part of the question is, similar, if you could give us a little sense about what the net retention rate is on your existing customers, recent trends versus how you see that unfolding, attrition rate, obviously, driven by mix up and and perhaps some attrition. But if you could just give us some thoughts on those 2 vectors, that would be great.
Thank you.
Sure. So I can't give you much because we don't provide that. But what I can tell you, both numbers are quite steady with new customers being the first. So retention, it's touchwood was was never a big issue here in the sense that we have good customers, they like us, and the renewal rates are very similar for many, many years. So that's regarding the the retention.
Of course, they're moving from one package to another. So maybe someone started with, support in a certain level and moved up premium or and then you see them dropping for one package and moving to the other. But when you talk as a customer, we retain majority of our customer when you talk about and and the challenge there is usually how do you upsell in the sense moving them to a high level of support that maybe match their size and and and trying to keep pricing on the same place. And that's actually tougher in a competitive environment. So that's one.
When you talk about new customers, so for us, this is the biggest opportunity. It's a huge opportunity because when you think about it, see, we have a 2,000,000,000 revenues, but the majority of it is by far is coming from existing customer, which means maybe 75% or 80% of the market is out there for us to go and compete So that's why we have such a big focus on your customer. It remains similar for a long time and for the last, I think, quarter or 2 quarter, we see a nice increase. And, you know, we invest quite a lot in this initiative. It's not easy to move that.
And we talked about it in many calls. What do we do in order to enhance the activity in that area? And we intend to in you and invest a lot on this in order to increase those numbers.
Okay. So in COVID, it has moved up a little bit, and particularly as your portfolios expanded, perhaps, Is that is that helping to move a little the needle a little bit on new customer acquisitions?
It's it's a bit early to celebrate in the sense that it's 1 or 2 quarters. We need to see a phenomena continue in for you to in order to say, yeah, we're on the train there, but we have a lot of focus there. I would say in terms of Infiniti, I can give you an example when you ask about percentage of new versus existing in infinity, you see that the significant portion is coming from new customers. So that's a good tool to, maybe to engage with the with new customers. So I think the more we will do, Infinity, the more we will see success there as well.
I'll jump to the last team and say that salespeople are generally saying that in the corona time customers are actually not happy to move to the event. I'd like to stick to her existing vendors. Still having said that, we've had we've seen some good trend in new customers this quarter. And I'd like to hope that we will be able to continue with that trend.
Okay. Thank you.
Our last question of the day is gonna come Adam Tindle from Raymond James. Adam.
Perfect. Thanks, Kip. Tal, I just want to start. Thank you for the Q4 guidance. I think you mentioned in an earlier question that Q4 was massive in understanding trends for 2021.
When I look at that Q4 guidance, not to get too granular, but it looks like revenue is gonna be up around 8% sequentially at the midpoint and it's normally up 12 to 14% in in a q 4. So guess the question would be, you know, why are you indicating below seasonal trends from the past few quarters? And if Gil wants to add any qualitative commentary, is this like a digestion period after strong trends or something like that? Thank you.
I think now you're looking for an exact math and remember we're coming from two quarters that we didn't want to provide guidance. So it was like a step a leap of faith for you guys to say we're giving you the ballpark of the range. It a it's a it's a risky time, and we wanted to make sure you understand that it's a risky time. Q4 is big, a bigger portion of products. So if was only support and subscription.
It's much easier because you have higher visibility there. But when you talk about q Four two items also in the support you have something that have to do with the installation and the consultation that's coming in the support line, which is no visibility as usual. But the product portion is quite significant. So it reflects the risk that is a part of this q 4 guidance. That's what it means.
And if you look, by the way, the total year, you will see, we pretty much, I would say in line with if you remember the original guidance that we had before COVID came and hit all of us, then it's pretty much in line with the midpoint, slightly higher than the midpoint of what we gave in the beginning of the year. And the EPS is still way above the high end of the range. Gave in the beginning of the year. So that's the logic behind it. I hope that helps.
Yep. Thank you.
Thank you guys for joining us today. We appreciate your participation. Again, we'll see you throughout the quarter. And if you have any, questions, please reach out to us after the call, and we'll try to get it back to you as soon as possible. Thank you guys, and have a great day.
Bye bye now.
Alright. Thank you. Thank you.