Greetings. Welcome to Checkpoint Software Technologies Second Quarter 2019 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow Please note this conference is being recorded. I will now turn the conference over to your host, Keith Meinzer, Head of Global Investor Relations.
Thank you. You may be Jim.
Thank you. I'd like to thank all of you for joining us today for Checkpoint second quarter 2019 financial results. Joining me today on the call are Gil Shwed, Founder and CEO along with our CFO and COO, Tal Payne. As a reminder, this call is webcast live on our website and is recorded for replay. To access the live webcast and replay information, please visit the company's website at checkpoint.com.
For your convenience, The conference call replay will by email at kippcheckpoint.com. Before we begin with management's presentation, I'd like to highlight the following During the course of the presentation, Check Point's representatives may make certain forward looking statements. These forward looking statements within the meaning of Section 27A of Securities Act of 1933 and Section 21 of the Securities And Exchange Act of 1934 include but are not limited to statements related to Check Point's expectations regarding business, financial performance, and customers the introduction of strategy and focus areas demand for our solutions, our business and financial outlook, including our guidance for Q3 2019. Because these statements pertain to future events, they are subject to various 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 Checkpoint's earnings press release issued on July 24, 2019, which is available on our website and other risk factors, which are included in Checkpoint's annual report on Form 20F for the year ended December 31, 2018, which is on file with the Securities And Exchange Commission. Checkpoint assumes no obligation to update information, Concerning its expectations are believed, except as required by law. In our press release, which has been posted on our website, we present GAAP and non GAAP results, along with a reconciliation of such results as well as the reasons for our presentation of non GAAP information. Now with that, I'd like to turn the call over to Alpine for a review of the financial results.
Thank you, Keith. Good morning and good afternoon to everyone joining us on the call today. I'm pleased to begin the review of the second quarter. Revenues for the quarter increased by 4% year over year to $488,000,000 and our non GAAP EPS reached 1.38 dollars, both slightly above the mid of our guidance. Before I proceed further into the numbers, let me remind you that our GAAP financial results include stock based compensation charges, amortization of acquired intangible assets and acquisition related expenses, as well as the related tax effects.
Keep in mind as applicable, non GAAP information is presented, excluded, these items. Now let's take a look at the financial highlights for the quarter. Product and security subscription revenues were $270,000,000, a 5% increase year over year. Our subscription revenues continue to be strong with 13% growth, reaching $149,000,000. Our software update and maintenance revenues increased to $218,000,000, representing 4% growth year over year.
The growth in our subscription revenues is driven by our Advanced Solutions, mainly SunBlast 0 day threat prevention, cloud and infinity solutions. Deferred revenues as of June 30, 2019 reached $1,286,000,000, a growth of $128,000,000 or 11% year over year. Revenue distribution by geography for the quarter was as follows: 48% of revenues came from Americas 40% of revenues came from Europe, Middle East and Africa region, and the remaining 12% came from Asia Pacific. Since the beginning of the year, I remind you, Middle East and Africa is our part of the Europe, Middle East and Africa region, while before it was part of Asia Pacific Middle East and Africa regions. The revenue distribution by geography for Q2 last year after the reclassification would have been 48 percent of the revenues from America, 41% of revenues from Europe, Middle East and Africa region and the remaining 11% from Asia Pacific.
You can see our region had a growth this quarter. We continue to invite to invest in our sales force and marketing in order to execute our growth strategy. As a result, non GAAP operating margin for the quarter were 50%, same as previous quarter Q1 and in line with risk in our portfolio yield as a result of lower interest rate expectations in the U. S. Hence, our financial income for the next quarter is expected to be around $20,000,000.
Effective non GAAP tax rate for this quarter was 19%, similar to the first quarter of this year. GAAP net income for the quarter was $186,000,000 or $1.21 per diluted share. Non GAAP net income for the quarter was $211,000,000, or $1.38 per diluted share, $0.02 above the midpoint of our guidance. Our cash balances as of June 30, 2019 were $4,110,000,000 compared to $4,000,000,000 $42,000,000 last year. Our operating cash flow was $233,000,000 compared to $213,000,000 in the second quarter of 2018.
A 9% increase year over year. Collection from customers continues to be very strong. Our operating cash flow includes tax, and balance sheet hedge transactions, which can fluctuate from quarter to quarter. Excluding these items, our operating cash flow increased by 4%. During the quarter, we utilized the maximum quarterly buyback authorized and purchased 2,800,000 shares for $325,000,000 Now let's turn the call over to Gil for his comments.
Thank you, Talin, and hello everyone for joining us today. And pleased with our second quarter financial results. We were just above the midpoint of our projection, but more importantly, our execution and transformation continued to improve. When I speak about transformation, I'm addressing the modernization of spending the security coverage into the cloud mobility and IoT spaces. In the second quarter, we made good progress around IT modernization.
Our cloud business has grown quite significantly, more than doubling in size this quarter. We've introduced new solutions for security and data analysis, with the new Logic cloud security solution that takes information from cloud providers and process that into meaningful insights and action. In the first quarter, we introduced Maestro solution enabling cloud like elasticity for customer security environment using our hyperscale technology. In the second quarter, Maestro demonstrated solid traction with many new projects. We've continued to modernize and upgrade 800 security appliances in the first quarter and continued in the second quarter with the introduction of the high end 16,026,000 security appliances.
These security appliances are optimized for Gen Five Security operation. Today, we're launching our highest end model of the 26,000 Series but delivers performance of over 300 gigabits of raw firewall and 30 gigabits of Gen Five Security. A 50% increase from previous models. The 16,026,000 security appliances are powered by our latest version of security software, R80 dot 30, which featured many new and unique capabilities, including advanced threat prevention for web downloaded content and the ability to process SSL security with higher levels of security and performance. While our progress this quarter primarily reflects technology advancements, the cloud and network environment, we also made good progress with our execution in the field.
For example, in Asia Pacific, we had a terrific quarter with double digit growth and we've substantially increased field and marketing activities. This success can be largely attributed to our new APAC leader that joined us at the beginning of the year. In the U. S, we saw quite healthy trends this quarter. Product growth in the U.
S. Resume and the majority of region demonstrated healthy growth rates. We've also significantly increased our marketing activities. In the first quarter, we had almost 10,000 participants at our free global Cpx-three sixty conference in across Asia, America and Europe. In the second quarter, we took the Checkpoint experience program locally with 37 events in different cities around the world tripling the number of participants to almost 11,000.
Our headquarters hosted many Chief Information Security Officers, including 2 large events each attended by over 100 CSOs including major global Fortune 100 companies. Our research team continued to generate breakthrough findings regarding malware and vulnerabilities in mobile and cloud. In the mobile space, we found the vulnerability in Xiaomi mobile devices that may affect over 100,000,000 devices. We also found malware named agents meet that actually affected 100 of application and over 25,000,000 Android users. Additionally, we discovered the vulnerability in electronic arts, APAC legend game that could have affected over 300,000,000 online users.
Another vulnerability that is a result of the security challenges associated with cloud structure. Our research team is exposing a lot of vulnerabilities enabling customers and vendors to fix them and stay out of trouble. However, there are many other cases where enterprises don't secure themselves that well, and the quality of security does matter. To make things worse in addition to the cost of business operation, technology, confidence and reputation that are part of being breached, companies are now being fined pretty hefty amounts by regulators. Just in the past few weeks, more than $1,000,000,000 in combined fines were given out to 3 companies that suffered major breaches.
I believe that these cases could have been prevented in real time by using the right technology at the right place instead of being detected months after the damage has already occurred. We have a big mission to educate the market, the real time prevention of cyber attacks is possible. Our infinity architecture is unique in VetSense and can really make a difference. So overall, I'm quite pleased with the progress we made in the second quarter. We produced good financial results and are on track to improve our operation and potentially generate even better results.
We continue to bolster our management team with the addition of new leadership for telco initiative and we intend to further augment our management team. For the first quarter, my usual caveats continue to hold true that predicting the future is always a challenge and there may be surprises lower or higher. With that in mind, I'd like to share the forecast for the first quarter. Revenues are expected to be be between $1.36 to $1.44. GAAP EPS is expected to be approximately $0.19 lower.
Now we are happy to take your insights
session.
Our first question comes from Brad Zelnick with Credit Suisse. Please proceed.
Great. Thanks so much for taking my question. My first one is for Gil and I've got a follow-up for Tal. Gil, it seems your commentary would suggest you're seeing evidence of improvement in sales execution, but at the same time, it would also seem you're going growing a bit less than the overall market. And I know you generally always tell us that the environment for cybersecurity spending remains robust, but is there any reason to believe that if we look at it today or in Q2 versus Q1 or perhaps even a year ago that there's been a change in the spending backdrop in the category?
I don't know if there's any change in the overall spending. I think the market is healthy now. It's not a market which shows signs of weaknesses. There are many changes in the marketplace, and I think we're very well equipped to handle them from a technological From a field perspective, we definitely need to go through some changes and we are going and we are investing in them and I think it shows. We need the we are We're going to hire up with the organization to cover broader spectrum of solutions We are selling more architectural approaches that requires sometimes people that are trained differently, different sales cycles, and I think we're making all the right investments.
You can see that in our sales and marketing spend, but it's not just the spend. It's really change and the education and the expertise that we are learning as we are bringing to market. And when I'm saying that I'm optimistic, I think it's because I'm seeing a lot of internal trends in activities in measuring in other management, managerial measurements that I'm very, very focused on And I think that in the first half of this year and definitely in the second quarter, we saw some big internal changes.
Thanks very much, Gil. And Tal, just to follow-up, we're seeing Checkpoint step up at sales and marketing investment this year, which the market opportunity and your strong technology, it seems a very rational move. And I know you think more in dollars than percentages, but we've seen op margin tick down even if slightly again this quarter, where should we expect it to inflect or perhaps ask differently? How are these investments beginning to pay off versus your original plan heading into the year?
It's actually completely in line with our plan. We said our margin will be this year around 49 percent. So it's in line with our plan. The main expense is a result of a continued increase in our headcount. Continued increase in our marketing efforts.
We had many, just as an example, we've provided the CPs. Historically, we used to have 3 CPs. Now, we had more than 40, we had 40 CpXs locally and globally. So we are stepping on the gas when it came to a when it comes to digital marketing, events marketing, and we start to see results and leads coming out of that. So that's nice to see.
It takes longer than it's not 1 quarter investment and then the quarter after you see it. It's over time, you should see the fruits of that translating into growth in the revenues. And remember also that the trend of the move from product into subscription from product into cloud all of those cloud is also subscription for us, creating a lot of pressure on the product line. So at the end of the day, it should translate into our growth in the booking and in the
Thank you so much for taking the questions.
Our next question is from Michael Turnitz with Raymond James. Please proceed.
Hey guys, good morning, good afternoon. Quickly, Gill and Tal. Do we even comment on the full year guidance as the appreciating the prior full year guidance still in place?
Yes, we're keeping the guidance. Absolutely.
Thanks, Tal. And then I wonder if you could be specific at all about some of the trends relative to the hiring and productivity of the sales force. Where are you in terms of sales attrition, if we just say 2017, 2018 2019? And where are you over that 3 year period in terms of the percentage of the sales force, that full quota productivity, just so we can get a sense of where we are in terms of the transition.
First time line, it's hard to deduct from attrition. Is it good or bad? I think attrition this year was lower than a previous year, but depends where in the world. Especially in the U. S.
Some of it is very good. Some of it actually, some of it we should do more attrition to handle cases where we need to improve. But overall, there's no, I mean, that it's stable with some positive trends around that.
Okay. And can you comment on the level of productivity? In other words, what percentage of your sales force was that full productivity this year? Where it might bottom and when you expect that to improve?
Actually, remember that productivity is a result of a target provided. We provide targets that is not easy to reach. So I'll say productivity is probably similar to last year. We see think about it, the way we look at it is in order to see at the end of the day, the booking, it starts with much earlier measurements, meaning, and there we start to see a significant improvement. Starts from meeting customers, meeting new customers all the way to building pipeline, moving it from pipeline to best case from best case to commit and commit to bookings.
So that's the whole cycle. And it's the more complicated the transactions are more realistic than the longer it takes close the deal. So we're tracking those trends when it comes to meetings and book and a pipeline before you get into the booking and there we start to see a nice improvement.
Our next question is from shaul Eyal with Oppenheimer And Company. Please proceed.
Thank you. Good afternoon, everybody. One for Gil, one for Tal. Gil, the new checkpoint reward plan. Any preliminary views, how was it being viewed by the sales force by the channel partners.
It is somewhat different from what some of your competitors are doing. So just interested in and how it's being perceived out there.
Okay. So just to recap what we launched last quarter, a new partner program, called Engage. And I think a big part of the partner program is to base the rewards and all of that on activity level. It's done through and up. A sales rep of the partners collect points by doing sales activities like marketing activities like meeting with the customers and through the point system, just like in airlines, we can reward and give more points to things that, to activities that we feel are more important.
We'll I think that's a quite a unique approach. I haven't seen a lot of similar things in our marketplace. We just started with it. I can tell you that a nice percentage of our partners have already signed up and are using the app. The top partners that we have, the real top tier of partners, more than 70% of the companies have signed up for the program, and have started using the application for the reps that are using the application, we think activity level like we expected.
There's an issue when you launch something new like that, how do you how do you set the reward target? How many points you give? I mean, how to estimate how many activities are actually doing. So we are seeing good activity level, but it is just the beginning. I think that we will have a lot of learning during the implementation of that because it is a novel approach that's at least we didn't try before.
And I think it is based on my belief that what we should focus on is on the activity. It's not I mean, if we'll do the right activities, if we will work together with our partners, then we will achieve the results together.
Got it. Got it. And one for Talo, maybe Gil, if you want to comment about it, and maybe also building on Brad and Michael's prior productivity related question. So If you're bringing today, if you're hiring a new sales rep, whether you brought in from a competitor, or from another organization. How many quarters does it take until he or she are up and running and already providing, revenues and hence commissions.
It really varies, it really varies in the region of the world as the rep himself, is he bringing with him set of connections that, that is already involving, but mainly in the type of the account. So for a global account, it can take by the way, global accounts in general of the sales cycle can be multiple years. For a smaller transaction, it can be 3 months. So I would say that the average is around 6 months, but it's really a big that's where there's a big variance between the person, the type of accounts and the specific situation. Like if somebody stepping in into a region, which is with healthy activity and everything works well, it picks up for the previous rep left in somebody stepping in into a region when the rep when the previous rep wasn't doing a good job or when We're more than the previous rep and we need to build everything from scratch.
It will take longer. So I don't think that there is a clear answer, but I would say the average is somewhere north 6 months.
Our next question
is from Phil Winslow with Wells Fargo. Please proceed.
Yeah, thanks guys for taking my question. A question to Gil first, just on the pricing environment, if you think of it actually by tiers of customers, kind of telcos large enterprise, midsized businesses, anything that you'd want to call out there from a price environment, but also just from a demand perspective too, that'd be great.
I think the pricing environment and the whole environment remains competitive. We haven't seen any major trend in the in the discounting environment in all of that remains quite stable, which is a good sign because for years, it did change. And I think it's now a little bit more stable.
Got it. And then also if you think about just the demand environment sort of across the tiers, too, anything you'd kind of highlighted especially now that we're 6 months through the year versus last year, any changes?
Not really. I think that we have a we have plenty of opportunity. I think we're not missing opportunity. I a lot of it is up to us to our execution. For example, I mentioned that we brought last quarter a new leader for global telco activities, We brought in because we think that there is a much higher potential in telcos, even though we're doing quite well with some telcos, but I think the potential is really much higher.
But on the same time, I can't say that we're the single sector that I would say is kind of saturated. We have plenty of opportunities We have plenty of new customers to win and we have plenty of existing customers where we can expand.
Great. Thanks guys.
Our next question is from Shelby Sarafi with FBN Securities. Please proceed.
Yes. Thank you. So I saw that your billings growth was flat year to year It decelerated for the past 2 quarters. Can you talk about the strength of your pipeline going forward?
Actually, not really relating to the pipeline. The pipeline actually grew, especially when we talk about the products pipeline, which is very important to us as well. It's really relating to the fact that in the first half of last year, we had a few very, very, very large transactions. We talked about some of them. You can see in Q2, we had 2 large transaction last year of tens of 1,000,000 of dollars, which typically do not repeat.
A multi year typically. I always say that when it's a multi year, you need to look at the year over year. So when you look at the deferred revenue growth, year over year, you see 11%. And when you look at the implied booking, which again, we don't report booking because there can be a big variation between implied booking and booking and revenues because of the multiyear which is the math you just did. Multiyear has a huge effect on booking in our industry.
And let's say we had a few very large multiyear transaction, which obviously, they were signed in Q2 last year. Now for 2 years, we will not see. So for example, if you had a $50,000,000 or $60,000,000 multi year for 3 years, then you got last year a big pick. And this year, you will see minus 20 basically from the potential. So I would be cautious with looking at the implied booking.
Okay. And just to be clear, you didn't have those large transactions in the back half of last year. So, are you suggesting that that headwind goes away in the back half? Of this year?
Actually, I actually to admit, I don't remember if we had in the back half. I need to go and look into the numbers. I know clearly about here too, just because when we analyze the numbers, we saw 2 very large transaction. There were tens of 1,000,000. And obviously, it's created at our pressure on the booking of this quarter naturally.
And of course, there's nothing bad in this transaction. It just skews the measurements year over year.
Okay. And separately, it looks like according to my math, your EMEA revenue growth decelerated to 2% roughly from 9% in Q1. You did well in Asia, but what happened in Europe?
Actually, Europe had the strongest one in Q1. So sometimes you need to look at the year to date in order to see the full effect. So you're right. Europe had the weaker quarter this quarter and they had a very strong quarter in the previous one.
So just lumpy is what you're saying?
Yes, it's going to happen.
Okay. Thank you.
Our next question is from Andrew Nowinski with Piper Jaffray. Please proceed. Great.
Thank you. I was just wondering if you
could provide any color on
how you think Checkpoint is positioned in security for cloud based locations relative to power out those globalprotect cloud services and Zscaler.
I think it's many different ways. I think first, this area is an area that we are addressing. We are building the solution and I think we'll see some nice solutions there. I think overall, when you look at the overall cloud service that we provide, we have a much more integrated and comprehensive approach to cloud security. Again, what you're asked about is one aspect of security about remote access and some small branch offices, which is an area which is right now not the key focus of what we did, but I think we are addressing it and we'll have some nice solutions to that.
Overall, in the cloud, I think we're making great progress in cloud security management, in building the future cloud architecture with what we call Infinity 2.0 that will provide which will provide a very robust and comprehensive cloud security architecture, one that I think nobody has and nobody's actually building. At the moment. So, I think that in general on the overall cloud, we are positioned quite nicely.
Okay. Thank you. And then I just had a question on your product revenue growth or lack thereof. You had some new product launches this quarter at the high end. I know you said you're going through a big mix shift to subscriptions, but I'm just wondering when do you think product revenue will perhaps return to growth given some of the new appliances you launched?
Thanks.
It's a very good question. I think firstly, quarter, we had some positive trends around that. So I'm internally the metrics that I'm seeing is actually quite positive. I did mention in my comments that in the U. S, for example, when we had a challenge with product growth, we did see a product growth this quarter, which is a very good sign.
I think overall, I would say that my main focus is looking at the business growth overall. I think moving to subscription is a very positive thing. And then I think that's part of the business is growing. And instead, Ian, we're developing more and more methods to understand, to analyze, to understand the real impact of that because sometimes it can be confusing like When you sign them out to your deal, it looks like subscriptions are growing, but they're not really growing. So we've actually, we've actually had good for that and they are positive this quarter from everything I've analyzed and I've seen the trends are positive.
And hopefully we do the right things, then also product growth will be stronger. And when all of that comes together, we will have We believe even better results.
I would just add though, when you look at the longer term, our goal is to be to growing products naturally. We focus on it. We have a lot of focus on that, and we saw like Gil said, nice trend this quarter. But I will say when you look at the long term trend, it's clear that the entire industry we cannot ignore it in the background is putting a lot of pressure on product by choice and moving all of it into subscription support type revenues, which is recurring. Infinity is recurring model.
Cloud is recurring. Virtual licensing now is recurring revenues also in subscription. So all the new products are being launched as a subscription. Now historically, you had the gateway as a product and all the add on security solutions as subscription. Now even the product itself, which is the license for the firewall, if you want to call it that way, is a bit on the cloud or as a virtual in the private cloud is now being sold as subscription as well from 2 years ago.
So it's naturally putting a lot of pressure on that line that is called product and that's why our focus is on the total growth.
Understood. Thank you very much.
Our next question is from Dan Ives with Wedbush Securities. Please proceed.
Yes, thanks. So to the prior question, when you think about cloud and the dynamics going on there, do you continue to think you can get there organically building out sales and obviously the product portfolio or just maybe talk about M and A? And obviously you've done some M and A just maybe talk about that philosophically, how you're thinking about cloud organically versus M and A?
First, we've already made a couple of acquisitions in the cloud. So it's not a theoretical question. We do think that can use our technologies and the Dome9 is an example. And the 4s knock that we made at the beginning of the year is another example. I think overall, my belief that the strength of what we provide and not just the strength of what we provide, but the real value of security is not having a supermarkets of a few dozen products, each one addressing a slightly different niche of security from a different standpoint.
But solved from the same vendor. The value of security is really combining into one architecture. At this point, from what I see in the marketplace, We remain the only vendor that is actually implementing this approach. Our competitors are not are not doing well in terms of providing unified architecture and the ones that are extending are doing it with, again, many different fragmented solutions that don't really connect to each other and don't provide one high level of security for all the different needs. And I think in the long run, I'm a big believer that that approach is the must and will win.
And I think I mean, so the combination of one, what we have, the threat cloud, one set of technologies that are very strong in security and multiple delivery methods. Delivery on the cloud, delivery on the network within the cloud delivery for a Yahsat cloud application and so on and so forth is critical. That's the only way to deliver the security level that the world needs and that's what we have today and that's what we are expanding and building.
Thank you.
Our next question is from Greg Moskowitz with Mizuho Securities. Right. Please check and see if your line is muted.
Thanks very much, and good afternoon, guys. Gil, I didn't hear much commentary on Infinity in your prepared remarks this quarter. And so just wondering how demand for Infinity is tracking relative your expectations thus far?
So actually we're doing fine with Infinity. Revenues from Infinity were better this quarter basically because we've got deals both from this quarter and previous quarters. New deals, we signed pretty much the same amount of deal that we signed in the first quarter, which is good. Much more than, of course, what we've done in the previous years when we just started. And the overall pipeline in Infinity keeps growing and keeps growing in pretty big numbers.
So I think overall, I'm pleased with what we are doing with Infinity, the potential is high, the execution, the execution actually the nice things to see that it scales from small businesses to medium businesses, to few even very large deals. So we have potential in all the different market segments. So I think we're making good progress on that.
Okay. Thanks, Gil. And then you also talked about our $80.30. I know it has enhanced SSL inspection as well as threat extraction and some other capabilities. Do you see our 80.30 though as something that can drive incremental revenue per customer on a go forward basis?
How are you thinking about that?
I think with every brochure that we cover the potential for more revenues, more customers, more more potential with the new features that customer needs. On the same time, keep in mind, and not that I'm saying that there's any other option. On the same time, when you come with a new with a new version that means that the customers are yet to spend their time upgrading and investing in the upgrade process itself, but sometimes slows them down from expanding. Because upgrade in our marketplace is still, especially, by the way, the large customers for them doing an upgrade cycle is a very long and resource intensive process. So overall, I think in our market, the right things to do and what we must, and I think we are the strongest in 1, is upgrading the customer base, bringing them all the time with the best security, with the highest level of security.
I think that's where we excel. From an operational standpoint, upgrades are, time consuming for everyone.
Okay. Thank you very much.
Our next question is from John DeFucci with Jefferies. Please proceed.
Thank you. I had a 2 part question and I think the first one sort of a follow-up to ELVs. So, Tal, I think even the short term or current billings were a little bit below our expectations. They were up less than 1% year over year. I guess, can you provide any more commentary on that?
Cause that's not affected by duration. Perhaps the product launches at the end of the quarter could have delayed some purchases. I'm thinking, but it sounds like sales execution has seen some progress. So that's the first part. And the second part is, what follow through have you seen after those launches over the last, it's only been 3.5 weeks since the end of the quarter.
Especially as Gil said, you've announced the highest end 26,000 series model launched today. So just kind of trying to get a sense here, because business looks stable, but it just feels like it could be doing a little better?
Sure. First, I'll say when you calculate the implied booking, it also affects you the multi year, even in the short run, because if you would have got each year on the right time, the deal of that year, then you would have saw we use the growth because the deal that was signed last year was not just a renewal, it was a significant growth. So you missed that growth in the calculation of the implied this year. But putting that discussion aside, you're absolutely right when you talk about the launch of the new product. Typically, when you have a new product line, then it takes time for the customer to check it.
So when you talk about the high end, then high end need to, need to get an approval for these new products, what you call, certify the new product, that can delay some transactions. Remember that the launch of the high end was towards the end of the quarter. So it still didn't reflecting the numbers almost. Also, remember that when you launch a new product, you can have some cannibalization between families when people get much more throughput in a new product and they can choose to go one level down, get more throughput and pay less. It's a short term bad phenomena, but it's good for the business because it's increased throughput of the customers.
And when they have more throughput, then they can adopt new technologies and new subscription in a later stage. So it's good for the long run, but sometimes in the short run, it creates pressure and it definitely creates pressure, yes.
Any commentary over the last 3.5 weeks? I mean, that's not that's a very short time, I know, since the end of the quarter, but we'd sort of expect to see some benefit after the launch of these products.
It's very high. I haven't seen updated numbers. The quarter started strong and very well, which we never say, but even if I say it doesn't matter, some quarters start strong and end weeks, some quarters start weak and end strong. So I just think I've looked this morning on my dashboard all the lights were green and I was very happy, but it's not an indication to how we will end the quarter. Just to be clear.
Okay. But we like to hear when you're happy, Gil. So thanks a lot.
Our next question is from Walter Pritchard with Citibank. Please proceed.
Thanks. I guess Tal, just to clarify on the comment before on the product side, it sounds like it's too early to tell the impact of the new products. Any sense as to whether or not some of those impending product launches impacted negatively product sales in Q1 and Q2, just given customers knew those were probably coming and might have been waiting and not purchased in front.
It's absolutely impossible to calculate it because you can theoretically see what was things that were in commit. Or in best case and didn't happen and been delayed to a quarter after, but it's too theoretical to calculate. It's obvious, though, because we've been doing this refresh for a while. We know when we come with a new product line, the market is evaluating it. It takes time to go through the channel.
Many times their partners want to sell the old until they learn about the new, it takes time, right? So it's typically, but the high end, what I recall from the family, the high end typically takes slightly longer because it's a sometimes require it's a very large customers and it requires internal certification from their end.
And I would also add that we use the new product to make some more changes than just replacing a model with a faster model. We did use that opportunity make slight changes to the business model, for example, how we do subscription for the new model. So we are trying a new model for subscription, which we think is very competitive and can have any change like that can have positive effect and can have some negative effect because it changes business behavior. That's for the models that we launched, the 201626,000. We are trying to we are applying the same changes now for the 6500s when to introduce in the first quarter.
And again, there we also did some changes to how we conduct business with, for example, came up with models that are more competitive and have much better price performance. So we try to limit the level of discounting that are given to them. I think it was successful, but again, it sometimes delays things and sometimes caused some disruption. So it's not just technical changes in the product. We are using the new product launches to try some new, to try some new business changes that hopefully in the long run, we'll have a positive effect.
And then, Tal, on the sales investments, can you talk about as you move into the 2nd half and then looking at Nick year, how are you determining and especially how could we in terms of us looking at the financial statements, get a sense as to whether or not it may sense for you to be investing incrementally more into sales and marketing in 2020?
I think it's way too early. I mean, you know, everything happens in Q4. So I think we don't look at that yet. We need to see how the key year is closed. We need to look at the productivity.
We need to look at the at everything in Q3 and specifically in Q4 in order to make the plan for 2020. Typically, we start up planning in Q3. But it stands there and wait until the results of Q4. And after that, we do we have the final budgeting. So it's a bit early to talk about it now.
Okay, great. Thanks for taking the questions.
Our next question is from Ken Talanian with Evercore ISI. Please proceed.
Hi, thanks for taking the question. First off, I was wondering, were there any changes to your renewal rates on either maintenance or software blades?
Not really. No.
Okay. And then are you seeing any sales cycles extend as Infinity is presented as a purchase option?
Can you repeat the question, please?
Are you seeing sales cycles extend as Infinity is presented as a purchase option to customers?
Infinity by definition, it basically offers the customer the entire products portfolio. From the network to the endpoint, to the cloud, to the mobile. So when customers interested in that can take longer time. Having said that, I saw some transaction that's closed really fast and I saw some transaction that closed longer than we thought. So it really depends on the size of the customer and its readiness.
Maybe as a quick follow-up to that, Are you giving an incentive to sales reps or channel partners to push Infinity, right? Are they getting an extra benefit they are able to close a deal there?
Yes, they do. But again, it's more think about the customer. The customer is the one who's supposed to take all these technologies and implement them over the few years. So the answer is yes, we give more incentive, but it's an incentive that is in proportion to the to the potential for us and the growth opportunity for us.
And by the way, there's an inherent incentive because infinity bills are much, much larger than point product deal. But still, I think the main value is not, say, especially on a, on a strategic deal for the customer. The customer is the 1 to determine and they need to get convinced and they need to do due diligence. And by the way, in many cases, they need to, combine different forces from different sub department of security and networking operation to make that decision. So yes.
Our next question is from Keith Bachman with Bank of Montreal. Please proceed.
Hi, thank you. I had 2 related questions. I'll ask concurrently. The first is, per the previous question, I just wanna to clarify, do you believe that you're seeing an impact elsewhere the market impact from offload, capabilities like Zscaler. Is that impacting firewalls in your judgment?
And the second is, as you think about today, you've talked about the move to subscriptions and and Infinity. But as you think about your portfolio, how much do you think or could you give us some estimation about how much your revenues are non firewall today? And how do you think about that over the next 2 to 3 years? How do you feel like you want to or seek to diversify your revenue streams? Thank you.
So first, I don't think that right now, technologies like what Vscaler has is, has much impact to our direct competition with what we're doing, but maybe a marginal one but not in the mainstream market and we don't see a lot of, I mean, a real head to head competition between the two between the two areas. It's definitely an area for expansion for us, at least. As for how to classify the revenue, that's a very interesting question. Really depends what you classify as firewall, what you classify as non firewall, for example, take all our subscription revenues, this is advanced technology, this is way beyond the base firewall, and that's today, bigger than the basic firewall sales. So that's one example.
So I think it's a I don't have the number on top from the top of my head, but if I look at the beyond maintenance and support that we sell, the portion of advanced technologies, advanced security technologies and capabilities today is probably bigger than the basic network firewall proportion of our sales.
I would have said as a rule of thumb, it's exactly what Gil said in the sense that what you have right now in the product line, and that's why it's such a tough line to grow. Is basically the appliance or the initial license, which includes the architecture and the firewall and everything else is in the line of the subscription, meaning the antivirus, anti spam, advanced threat protection and next generation threat protection, our SunPlus, our cloud license seeing in our mobile and the endpoint. So majority of the rest, which is the add on technologies is not all a high level, I would say, is in that line. And as you can see, even if you look at this quarter, you will see that the product and license was $122,000,000 and the subscription was already $149,000,000. So it's bypassed that.
Our next question is from Sterling Auty with JPMorgan. Please proceed.
Hi guys. This is Matt on for Sterling. Thanks for taking the question. So I know someone has asked previously about the Europe performance. I just wanted to ask, if there were any changes happening in the sales force similar to what was done in the U.
S. And if there were other factors that contributed to the result? Thanks.
No, I think in Europe, we're quite stable. Management structure is good. We did have a very good Q1. I think Q2 fix continue to happen, but wasn't as strong as Q1. And hopefully, again, we'll see few more quarters that are strong there later in the year.
Our next question is from Karl Pierstead with Deutsche Bank. Please proceed.
Well, thank you. I just had 2 clarifications. Gil, your comment that product growth resumed in the U. S, I thought was interesting and encouraging. Just to put it in context, when was the last time you saw U.
S. Product growth? Was it, first half twenty seventeen when checkpoints overall product growth was last positive? And then I've got a follow-up.
I don't remember exactly, but I think you're in pretty much the right time frame. Your calculation, I think, are in the right framework.
Okay, helpful. And then the second clarification again for you, Gil, in response to a previous question, you used the phrase that there were, quote, big internal changes at checkpoint you mentioned in Q1 and especially in 2Q. Just to be super clear, What were you referring to? And assuming you were referring to leadership changes, were there 1 or 2 that were particularly significant want to be clear on what you meant by that. Thanks a lot.
I think first, I'm doing a lot of changes in in getting not just me, I mean, the entire team here focused on a lot of changes in selecting sales, measurements, sales disciplines and being much more clear and about the activity levels of people in the field. In terms of management changes, we're also feeling a lot of positions and sometimes replacing a lot of places we think would more potential maintenance. I mentioned telcos is 1. I think we are making more and more changes in the U. S.
Sale of leadership and you will see some more changes around that pretty soon. We're doing a lot of training for people in the field the beginning of the year, we brought a new leader for channels worldwide, a position we didn't have for, I don't remember when was the last time We put so much emphasis on working with the channel and doing it in a global level from the highest level to the lowest level I mentioned the new leader for Asia that we brought in the beginning of the year. So again, if I'm trying to recall from my memory, we are doing a lot of changes. We just promoted somebody internal to run sales enablement and sales planning and promoted somebody else to take her position in another departments. So there are a lot of changes.
We are okay. This is not big, most of these are not big revolution that affects things negatively. It's It's growth. It's few new people from the outside. And I think the most important one is I think we're very, very focused on the things we're trying to achieve.
Activity management, new customers, working with the partners and the whole going higher level in the food chain. Infinity consolidation and all this family of attributes that I think are one big focus area.
Okay. Thank you, Gil. That's very helpful.
Our next question is
Hi guys. Thanks for fitting me in here and taking my questions. I'll just keep it to one just in the interest of time. For you, Tal. Tal, can you just give us a quick refresh on ITP and its impact to billings specifically, can you just remind us if these deals are largely annual in advance for multiyear commitments And how do you sort of think about how we should look at billings as that business grows?
Because it clearly sounds healthy. And so I wonder if billings is really capturing all of that, all of that as that billings kind of duration changes?
So the answer is the opposite. The billing doesn't catch it because it's typically a multiyear deal, And typically, let's say, if the customer signs for 3 years, he has a commitment for 3 years, but you see in the billing typically only the 1st year. Because they pay annually, unless they chose to pay everything in advance, but in many of the cases, they pay annually. So it hurts your billing, although I got the bookings, which you can't see. So that's a so that's one point.
Second, I would say, and it's quite it can be quite large deals that you can't see through the implied booking. The second, I would say, the accounting You're absolutely right. When you look at those deals, it's split between all the lines, product support and subscription, but a smaller portion of the deal is recognized as product revenues, while the majority of the deal is recognized as recurring revenues over the life of the contract, because the way the deals are is that the customer gets everything Checkpoint can offer. So he gets all the subscription, all the endpoints, all the mobile, it gets everything. So when you do a fair value split of the deal, majority of the dollars are being sucked into the subscription line although it can get quite a lot of product, but in the product, you will see a smaller portion.
So it will be all the lines, but majority will go to the recurring and specifically to the subscription. We have reached the
end of our question and answer session. I would like to turn the conference back over to management for closing remarks.
Thank you all for joining us today. Obviously, we'll catch up with you throughout the quarter. If you guys would like to talk after the call, please send me an email and we'll fit you in. If not, we'll catch up with you during the quarter at the conferences or on the road during an NDR. Thanks and have a great summer if we don't talk to you.
Bye bye.
Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.