Fourth Quarter, Full Year 2022 Financial Results Video Conference. At this time, all participants are in listen only mode during the formal presentation, which will be followed by a question and answer session. Joining me remotely today are Gil Shwed, Founder and CEO, along with our Acting CFO, Roei Golan. As a reminder, the video conference is live on our website and is recorded for replay. To access the live conference and replay information, please visit the company's website at checkpoint.com. For your convenience, the replay will be available on our website. If you would like to reach us after the call, please contact investor relations by email at kip@checkpoint.com. During this presentation, Check Point representatives may make certain forward-looking statements.
These forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 include, but are not limited to, statements related to Check Point's expectations regarding our products and solutions, expectations regarding customer adoption of our products and solutions, expectations related to cybersecurity and other threats, expectations regarding our 2023 initiatives, our ability to continue to develop platform capabilities and solutions, customer acceptance and purchase of our existing solutions and new solutions, the market for IT security continuing to develop competition from other products and services, our share purchase plans in general market, political, economic and business conditions. Tried to cover everything.
These forward-looking statements are subject to other risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission, including our annual report on Form 20-F filed with the SEC. The forward-looking statements in this presentation are based on the information available to Check Point as of the date hereof. Check Point disclaims any obligation to update any forward-looking statements 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 the reconciliation of such results, as well as the reasons for our presentation of non-GAAP information. With that, I'd like to hand the call over to Roei Golan, our acting CFO, for a review of our financial results. Roei?
To review our fourth quarter, we had a strong quarter with revenues reached $638 million, which is $5 million above the midpoint of our projections. Our non-GAAP EPS was $2.45, $0.03 above the top end of our projections. As we move to the full year, our revenue reached $2.33 billion, $42 million above the midpoint of our initial projections, and non-GAAP EPS of $7.40, $0.20 above the midpoint of our initial projections. We can see also here the accelerated growth that we had this quarter also, and also for the full year, both on revenues and EPS.
Before I proceed into the numbers, let me remind you that our GAAP financial results include stock-based compensation charges, amortization of acquired intangible asset, and acquisition-related expenses, as well as the related tax effects. Keep in mind that as applicable, non-GAAP information is presented excluding these items. Now let's dive into the detailed review of the quarter. As I mentioned, our revenues grew this quarter by 7%. This is 6% last year. Our deferred revenues reached $1,878 million, represent 10% growth year-over-year. Our calculated billings reached $869 million. Let me remind you that our billing is affected by deals timing, duration, and payment terms and can fluctuate.
We'll see that our accelerated revenues growth is mainly driven by our subscription revenues that reached $231 million, representing 30% growth year-over-year. That was mainly driven by our CloudGuard and Harmony pillars that both delivered double-digit growth. Also, I want to remind you that Q4 2021 was the first full quarter with Avanan impact on our subscription revenues. Another effect that had on our accelerated revenues growth was the strong adoption of our Infinity strategy, which had a great quarter, continued to flow in accelerated rates of the revenues with 140% growth year-over-year. If we move in for our revenues by geographies, we can see that 49% of our revenues came from EMEA, 39% from the revenues came from America, and the remaining revenues came from APAC with 12%.
It's important to note that we had growth across all geographies. If we are looking on the P&L highlights for this quarter. Our gross profits reached $559 million with strong gross margin of 88%. Those strong margin are impressive considering we continue to have some additional costs for raw materials and shipping as well as price increase by many vendors. While we still see supply chain challenges, there is some relief and we expect to see modest improvement in 2023. Our operating expenses increased by 13% this quarter. This increase was mainly as a result of the continued investment of our in our workforce, including compensation and increased travel. Offsetting this increase, we also benefited from the stronger US dollar by approximately $10 million this quarter.
We see that our operating income reached $289 million, representing 45% operating margin this quarter. Our financial income this quarter reached $15 million as we invest in higher interest rates over time. Our non-GAAP tax rate for the quarter was around 1%, mainly due to updates of our tax provision because of several tax assessments we have worldwide. Our non-GAAP net income was $301 million, or $2.45 per diluted shares, which is $0.03 above the top end of our projections, 9% growth year-over-year. Our GAAP net income was $270 million, or $2.20 per diluted shares. If we're gonna move for the P&L highlights for the full year.
we can see again that our revenues has had a nice growth of 8% to be $2.33 billion. Our gross margin was strong at 88%. Our operating expenses increased by 15% this year, mainly related to the increase in our workforce. Our headcount was increased by 415 employees, 7% increase year-over-year. The effect of the P&L was higher, mainly due to the fact that we hedged the compensation in Israel in the beginning of 2022 with lower U.S. dollar rates. Also we had this higher travel entertainment expenses as we are back to travel. Our non-GAAP operating margin was strong at 45% compared to 48% last year.
As for 2023, a few factors about 2023, a significant part of our workforce increase was towards the end of the year. We started 2023 with higher run rate. Let me remind you, when we discussed last year plan for 2023, which we plan to be around 42%-43%, as the hirings took longer than anticipated, significant portion of it was done in H2 2022. Also, during the second half of 2022, we returned to higher levels of travel, we expect that our travel entertainment expenses will continue to grow and continue to normalize at higher levels in 2023. As for the FX effects in 2023, more than 50% of our expenses are in local currency, the strength of the U.S. dollar is expected to provide us a benefit.
Based on this factor that I just mentioned, we expect that our operating margin for 2023 will be around 42%. Our financial income for 2022 was $44 million, reflecting the increased yield on the portfolio. For 2023, we expect incremental financial income between $1 million-$2 million every quarter due to the pro forma investment yield. As for the tax rates for 2023. As for the tax rates for 2023, we expect similar tax rate this year compared to 2022, while for the modeling purposes, we expect a 14% tax rate for all four quarters. Now let's move to our cash flow and our cash position. Our cash flow, our cash balances, marketable securities and short-term deposits were $3.5 billion as of the end of the year.
We had a strong operating cash flow of $230 million this quarter. Payments increased naturally as a result of elevated raw material costs and investments in workforce as discussed. During the quarter, we continued our buyback program and purchased 2.6 million shares for $325 million at an average price of $124 per share. We are moving to the full year, we see that we generated very strong cash flow with $1.08 billion for the year. We also, if we take in the cash flow from operation decreased by 9%, but the net of hedge taxes and acquisition-related costs, the operating cash flow was in the same level as in 2021.
We repurchased 10.3 million shares for $1.3 billion at an average price for $126. For 2023, we expect our average diluted number of shares to be approximately 190 million shares for the year, starting with 121 million shares in Q1, moving down to 150 million shares by Q4, assuming share repurchases of $325 million a quarter. We announced today also our expansion to our buyback program in an amount of $2 billion. Under the program, we are authorized to continue to repurchase share up to $325 million each quarter, as we did in the last few years.
If we summarize our results, we have strong revenues and EPS for Q4 and for the full year of 2022. Our revenues and non-GAAP EPS above the mid of our projection, triple digit growth for Infinity revenues, we keep focused on top-line growth while maintaining strong profitability. Now I'll turn the call over to Gil.
Thank you, Roei, hello, everyone. I'm very pleased to be here and talk a little bit, share some little bits on the business and especially what we do moving forward. Let's dive in and go ahead with that. First, let me quick slide on the full year of 2022. I think we've covered many of these things in the previous quarter, but it was a very, very active year. We started the year with Quantum Lightspeed, a major platform for high-performance security. We've ended the year with Titan and Horizon, two very important upgrades for security. We've created many internal organizational changes with the new Rockets organization, New Commercial Organization, and even rebranding and changing our logo for the first time in almost 30 years.
I think financially, I think as you've seen from Roei Golan, we've done very, very well, both for the full year and for Q4. I already mentioned it in some other comments. This year was a little bit interesting from a financial perspective. We're very proud of the results and the strength of the business that we sold. For the first three quarters, we had a very good business environment. We grew our internal metrics the way we wanted them in a very high rate. Q4 was a little bit different. We did face some challenges towards year-end. Projects were postponed. Customers didn't have the budget flush that you usually expect in the Q4.
Despite that, again, the numbers that we have are very, very good, but I just want us to know that it's not business as usual and that even though we have good numbers and good forecast for next year, I think we need to be a little bit cautious more than usual. That's for summarizing everything we had. Let's talk a little bit about the future. I think one thing we know and one thing that's changing, the cyber environment is growing. I mean, there's more cyber attacks, and they become more and more sophisticated. We as security professional are in charge of keeping the business secure, and that's our job. Just to see the statistics here. The typical organization gets almost 1,200 attacks every single week. That's not per year, that's per week.
The 1,150 a year. In some sectors, they're much higher. In some geographies, they're much higher. That's very, very alarming. The question is how to win that battle against the bad guys, how to win against the fifth-generation and more sophisticated cyberattacks that we see. What I wanted actually to start with here, let me do that and share some. Is invite a friend and see a real case study of a Chief Information Security Officer from a real case and then understand how we can win that battle. Let's watch that.
On that fateful day, my confidence was shaken to the core. It started with a barrage of alerts from our antivirus software. At first, I dismissed them as false positives, but as they continued to pour in, I began to feel a sense of unease. I immediately launched an investigation, but it was too late. The malware quickly spread throughout our entire network, causing chaos and disruption. While my team was looking through the morning alerts, our systems and data became inaccessible, and our employees were unable to do their jobs. Why did this happen? We were using the best products. I did everything by the book. It happened because all those products didn't work together. We could have prevented it had we applied a consolidated security architecture.
Thank you, Alex. By the way, Alex that you saw here, both his script and Alex were creation of AI, and 2023 is also the year of AI. Even though we at cyber don't have the nice hair that Alex has, the challenges that we face are the same challenges. You see here the real case study that occurred last year. On the end of February, I think it was 28th February, that company got some malware. Actually, the malware was first caught by some security software on one of the endpoints, and nothing happened. Six days later, on I think it was March 4th, if I recall correctly, the malware did enter the company, and that message was shown to all employees after the weekend.
The plants were shut down, 250,000 employees were sent home. After negotiation, the company paid $14 million of ransomware. The question is how to battle that and how we can win that battle. You know, this happens everywhere. You see some more here, LA, Uber. Again, we see unfortunately every day such attacks that occur. How to win that battle? What should be done differently? Let me draw an analogy to our real world. When we have a fire alarm on the sixth floor, everybody's rushing to stop it. We all get an alert. We are all checking what's going on. The doors shut down. The center of the building checks what's going on.
There's, you know, a message on the messaging system, and the entire building responds to that attack, so we can contain it and stop it, and hopefully even prevent it and keeping outside. Now let's draw the analogy and see what's happened in cyberspace. There's an endpoint here on the right. It receives some malware. Let's assume that it even catches that malware and stops it. What's happened with the rest of the entities around it, the different workloads, the different, the networking security, the cloud security, everybody else, they don't care. Nothing happens, actually. All the other products remain unaware to that security incident and are not doing much to stop it. That's the thing we need to change. We need to get to an environment when everything works together.
That's what we're trying to build with the Infinity architecture. New in 2023, we call it the three C's. What do these three C's means? Comprehensive prevention across all attack vectors, and you see these domes across all the different elements of the IT system, the cloud, the cloud applications, the endpoints, the remote users, the network, everything has to be secured. Consolidate. Customers spend a tremendous amount of energy, resources buying, managing, upgrading, renewing two dozen security solution instead of works together actually, instead of unifying it, reducing that complexity, and mainly managing in a way that actually creates more value. Last but not least, that's the one I'm going to focus on of the three C's, is the collaborative nature of the security.
When we see something suspicious on one hand or when we have a technology that can stop an attack, we apply this technology to all attack vectors, we do it in real time, and that's the collaborative element of the cybersecurity. How do we do that? We have in the middle of our architecture, this ThreatCloud, and now we are launching the ThreatCloud AI. I'll explain exactly why do we say AI, not just because it's a nice buzzword in 2023. That central ThreatCloud connects to all the elements of the security systems, to the users and the devices with Harmony, to the cloud elements, to the networking elements, and feeds them all and collects information and prevents attack in real time. Why do I call it AI? Not just because it's a nice buzzword.
You see, for example, our latest five engines which prevention engines which we introduced into ThreatCloud. We talked about them, I think, two months ago, and they are getting to market now. We're in market now. All of these are based on AI technologies. By now, just to give you the sophistication and the power of ThreatCloud, we have in ThreatCloud 75 prevention engines, 42 of them are already based on AI. Just in 2022, released 12 AI engines. That shows you the strength of ThreatCloud, something that I don't think any other vendor can match, collecting and responding information from all attack vectors, from the cloud, from the users, from the network together, and applying AI to them and generating the best prevention actions that we can do over them. That's the heart of...
Not the heart, the brain of the system here. Once again, the three Cs, comprehensive prevention of attack across all the vectors from code to cloud, consolidation, unified management, one way that the security admin, that CISO can manage the entire system, and last but not least, the collaborative element of that. The best security engines, but they are applied not to one vector, not a great vector applied just to email, not a great engine applied just to endpoint, but all the best engine applies to all attack vectors and are doing their work in real-time with an architecture that's based on APIs, that's based on integration, and that allows even integration within our framework and even to external vendors. That's the three principles.
Along these three principles, we will announce many, many new product, and we launch product to speak about in many, many areas. I won't stop here to do that. That will take too much, and I don't think that's necessarily the main focus of an investor call. You see from the Quantum elements to the left, to the centralized management with Infinity from the cloud or not from the cloud in the middle, all the way to the new. If you remember, we had three product pillars, three major families, Quantum, CloudGuard, and Harmony. Now we've added Horizon that provides far more threat intelligence in a centralized way that creates this collaborative effort. We don't call it just XDR or MDR, which is detection. We call it MPR or XPR, prevention. Prevention and response.
One interesting product that I think touches to a market that has importance in terms of market size and customer demand, that's the SD-WAN element. We are introducing now an SD-WAN engine or an SD-WAN, what we call it, blade, into our different gateway families. Very comprehensive prevention, making networking both fast, optimized in many networking environment, but also with the highest level of security. Just one important product amongst all the others. Just to show an interesting quote, we had last week our CPX 360 conference, again in a live mode in New York. It actually was a kind of a hybrid conference when we did it in six different locations, live plus virtual, to gain access to many, many more customers and partners.
An analyst that we invited doing actual security analysis and testing of product, Rob Smithers, CEO of Miercom, surprised us even with, not with the data, because with data we know, but a very, very good slogans that he shared with us on stage, says, "Check Point, what you got is unreal. 99.7% zero-day prevention is unreal." He continued and say, "You know, guys, I thought when I saw that maybe our tests are too easy, but other vendors, your competitors, not other vendors, only reach 30%. I've checked the reports. Actually, some of them get all the way to 40%. Guys, this is very, very different. It's not the same, a little bit better. It's the difference between letting the bad guys in or preventing the attack altogether." That's actually what Rob continues.
He says, "Prevention is first place. Only Check Point is doing prevention. Second place is the victim, and that's what we don't want to be." Just an interesting anecdote from last week. I think what we have all together is a very, very robust strategy, a lot of activity inside the company to bring this message to the market, and I think a lot of work on new technologies to implement this vision in a better way. Before I finish and summarize, just to provide you with our projections for 2023 in the first quarter. As I mentioned before, and as I'm mentioning every time, predicting the future is always difficult. The level of uncertainty in the market now is actually higher than usual.
Not that we haven't seen that kind of uncertainty in the markets in the last few years, but even to that level, I think we are three years ago, we've been to a similar situation. Now I think we're getting into another interesting period of the marketplace. I think, by the way, in the mid and long range, it can play to Check Point's strength because in times like that, people look for consolidation. In times like that, people look for strong vendors, and I think that can very much play into our strength of providing the best security. Just to put things in perspective. The projection for the year shows continued healthy growth, continued healthy investment with revenues between $2.34 billion-$2.51 billion.
Non-GAAP EPS is expected to be between $7.70-$8.30. GAAP EPS is expected to be approximately $1.22 less. For the first quarter, we're also expecting decent numbers, especially given the economy. Revenues are expected to be between $545 million-$585 million. Non-GAAP EPS is expected to be between $1.68-$1.78, and GAAP EPS is expected to be approximately $0.31 less. That summarizes, I think, what we had to share so far. We very proud of the strong financial results. I think the highest revenue growth in many, many years. EPS for the fourth quarter exceeded our range. We will be working very hard to harness these three C's of best security, providing a comprehensive, consolidated, and collaborative solutions.
We expect both our investment in the business and the growth that we will see as a result of that to continue in 2023. I really want to thank you for joining us today, and we'd love to open the call for your questions.
All right, gang. As always, we would appreciate it, if you would just ask one question. That way we can get through everybody and work our way back through you guys again. I will call out the first name, followed by the person that will be up next. Up first is Adam Tindle from Raymond James, followed by Joseph Gallo from Jefferies.
Okay, thanks. Good morning. Gil, I guess I just wanted to start with kind of the financial model here. If I look at 2022, margins came down by about 400 basis points and billings growth was only about 5%. If I look at your guidance for 2023, we've got more margin compression coming and not a significant acceleration in terms of revenue growth. Just curious to get your take on how patient you're gonna be with this investment and the timing to see some growth acceleration on the other side of it? Thank you.
As I mentioned in 2022, with first, I mean, we do want to invest. Our goal is to grow, our goal is to do what's right, and I think our margins are very rich. My focus is not on the. Again, I've always been proud, and I'm still proud to be a profitable company and don't intend to change that. I actually think that it gives us a lot of strength, the fact that we have this flexibility and freedom to do whatever we want and generate very good results. If I looked in 2022, actually what I've seen the first three quarters, we've actually got into internally, again, in the measures that I see, but some of them you've seen too, very high growth rates.
We've created more new business. Everything worked according to plan. Fourth quarter changed that. Again, I'm not shy in sharing that. I wish it was different. Again, I think it's an industry-wide phenomena. We actually kept winning projects, kept getting very good feedback from customers. Just in the last week, two weeks, I met with about 100 customers and partners. They all shared their enthusiasm with our technology, with our strategy. They all were interested in the expanding the solution. There is a but, I think we've seen what usually we see at the fourth quarter, which is huge budget flush, big projects got delayed, no budget flush. Again, I think from what I've seen the last few weeks, it's an industry-wide phenomena that we need to be aware of.
So far what I've seen is that the investment does pay off. Again, unfortunately, we didn't have the fourth quarter to kind of create this strong momentum moving forward. I think in the future, we will continue to invest. The level of investment in 2023 is not necessarily going to be the same as 2022. I think in 2022, we built a lot of new organizations. We've been very strong in recruiting a lot of frontline salespeople, which, by the way, I think Roei mentioned it in his comments. Some of them, some of the effects will only see in the spending in 2023, because in December, for example, we hired a lot of people, and they will show only in our Q1 run rate.
All right. Next up is Joseph Gallo from Jefferies, followed by Keith Bachman, BMO.
Hey, guys. Thanks for the question. A bit of a follow-up to that last one, I understand there was macro in a tough Q4 comp, but what is needed to explicitly grow, you know, double digits? Is it products? I saw you lean more into SD-WAN, or is it go-to-market? I may have missed it, but just a quick clarification. Do you give a sense of RPO or annualized new business in the quarter? Thanks.
I will answer that, and I'll let Roei answer the RPO part. I think what's needed is mainly go-to-market. We, when we see, when we engage with customers, when we deliver our message to the customer, to the CISOs, to the CIOs, they love the message and they expand the usage. That's by the way, when you see the growth of Infinity, it's an amazing testimony to what we've got. We can do much better in that, and that's why I'm saying we hired a lot of sales people. We're still training most of them. Internally, we have plenty of room to engage more with customers, to call on more customers, to bring this message to more customers and in a much stronger voice to the marketplace. I think that's where the main thing.
Of course, we need more products, of course. We're expanding the products, but on that's actually not the comments that I hear from customers. When I sit to meet with customers, they're enthusiastic about what we do, and they just said, "Just share more with us because it resonates with what we need." Roei, I'll let you talk about the RPO.
Yeah. As for the RPO, it's something that we usually don't disclose. We disclose it one time, but it grew high single digits in order win.
Thank you.
Next up is Keith Bachman from BMO, followed by Andrew Nowinski from Wells Fargo.
Hi. Thank you for the question. Gil, I wanted to ask about the product market dynamics. If I think about your guidance that you gave, it suggests that products will grow probably low single digits in FY 2023. You grew 4% in Q4, but I think it'll be below that for the balance of 2023. Your competitor, Fortinet, gave guidance kind of mid-teens for product revenue growth. Now there's probably some backlog usage in that number. I'm just wondering, You talk about the strength of your product and whatnot and the efficacy of it, and yet you're still undergrowing one of your major competitors. I'm just wondering, similar to the last question, what do you think needs to catalyze or ignite the product specific side of the growth?
If you could specifically address the SD-WAN announcement that you made this morning, how important was that and when that might help manifest in terms of improved growth for the product side? That's it for me. Thank you.
Thank you. First, I mean, you are right in many of the things you've said. I'll give at least the way I view this. First, we are shifting more and more business from a product perspective to a subscription business. By the way, we keep doing that with Infinity and even most of our new products. Again, that's another highlight that will take some time. We've started that. Many of our new products, we want to offer them on a monthly basis, simple pricing model. It's really easy for a customer to say, "I want, you know, to secure a branch that starts at, I don't know, $13 or $15 per branch per month." Very easy, very affordable, very simple model as opposed to the complicated business models that sometimes exist in our industry.
That does have an effect, whether what's growing is product or not growing. Same for Infinity. Again, the Infinity contract that we've signed throughout all of last year have shown some effect in Q4. They didn't necessarily had a big effect on the quarter when we actually got the contract. Now, I think the phenomenon that we've seen over the last year is that our growth rate was going up and some of our competitor growth rates was going down. I hope that this trend will continue. As I said, I think the economy now changed a little bit this assumption. If you'd asked me that, three, four months ago, I would be far more optimistic. Again, I think we did generate almost double-digit growth rate this year, and in some aspects internally, we did generate more than double-digit growth rate.
That's the plan. The plan is to accelerate our growth. As I said, our potential and opportunity is reaching more customers, engaging more, and I think we're working very, very hard internally to achieve that. I think we have what it takes, but we need to get our act together on that.
When do you guys think SD-WAN can contribute, Gil?
I think that for more everything I know, we actually have a pretty healthy pipeline for SD-WAN. We have customers waiting for it. We actually have many customers already using it in early access programs. Usually, to have some real contribution, it takes between 3-6 months. This one I think has some pent-up demand ready, but still it's a product that because it's rollout, SD-WAN is usually to roll out to many branch offices, it takes a little bit more time because it's not just installing it in one major location. It's actually a longer rollout.
Okay, great. Thank you.
All right. Next up is Andrew Nowinski from Wells Fargo, followed by Brian Essex of JP Morgan.
Morning, and thank you very much for the question. I know your billings can be unpredictable due to large deal activity. I was wondering if you could discuss both linearity in the quarter and any large deals you may have had in Q4, or lack thereof, that might have impacted your billings growth in Q4, notwithstanding that tough comp you had from last year?
I think, this quarter, I think Gil also mentioned it, we've seen less budget flush. I think we didn't see any budget flush this quarter. Last quarter we saw we had some mega deals that came through this due to budget, some of them due to budget flush in Q4 2021. This quarter because of also the macro environments and also deals that the longer sales cycle. We've seen some of these deals all defer, deposits were deferred or slipped to Q1. That's in general that's affected our. That's what you see in the billing.
Need to mention, as Gil also mentioned, when we are signing Infinity contract, you won't see it in the billing mostly because the Infinity contract is billed based on specific payment terms, and most of them are not being billed upfront, so it can be billed in the next in the future periods. I mean, that's in terms of the billings.
All right. Thank you. Next up is Brian Essex with JP Morgan, followed by Patrick Colville of Scotiabank.
Great. Thank you. Good morning, and thank you for taking the call.
Gil, I was wondering if you may maybe kind of circle back on SD-WAN. maybe one hit the decision to build versus buy, and then two, are you seeing that the pull forward or the pulling from, for demand on a point solution SD-WAN basis or this full end-to-end SASE that you're seeing? Is that kind of the larger driver here? Thank you.
I think there's multiple factors that are driving it. On one end, customers are looking for SASE solutions that can consume the security from the cloud. Some of it makes sense, some of it may not. still many customers are deploying customers on site, which gives them a better performance, better latency, in some cases, better economics. There's the SD-WAN element that talks about the network optimization. The reason to build versus buy, first, we are looking for vendors to buy. We've looked in the past. I think the real answer is that the SD-WAN is very well tightly integrated into the gateway itself, and we build the gateways. It's integrated into the networking code. Buying an SD-WAN vendor and integrating it might take longer and might not necessarily generate better results after all.
Still having said that, we've looked at many vendors. We've even in the past, almost completed the one deal to acquire an SD-WAN vendor. The reason we didn't complete it is, was the quality of the solution. Today, SD-WAN solutions are still complicated. I wouldn't say niche because there are some important vendors, but not widely spread as they should be, and we haven't found a solution that will be really the silver bullet to have the quality technology that we can embed in our gateways.
Very helpful. Thank you.
Next up is Patrick Colville from Scotiabank, followed by Shaul Eyal from Cowen.
Good morning, team. Thank you for taking my question. Roei, from a financial perspective, I mean, how shall we model gross margins in 2023? 'Cause we've seen product margins rise for the last two quarters sequentially. I mean, should we think that that trend continues as supply chain constraints ease? Then I guess similarly, I mean, FX has been a big determinant for the last couple of quarters, and I presume will continue to be the case in calendar 2023. How should we model OpEx, the FX impact to OpEx next year?
I think, as for your first question, as for the gross margin, as I mentioned, I think we expect to have a additional improvement. Again, we hope to see additional improvement unless something in the environment will be changing the supply chain. Right now it seems like we're gonna have a modest we expect to see a modest improvement in the gross margin. Again, I would say that, again, it can range between a quarter to a half a point of the margin, improvement of between quarter to half point to the margin. As for the FX, as I mentioned also in my presentation, we had the benefit of the FX of approximately $10 million this quarter.
We expect to see also a benefit in 2023 as again, One of our primary currencies is shekels, so we hedge the shekels for most of the shekels for 2023, and we expect to see a benefit for in 2023. Again, taking all the... We took all these factors into the model, and I think it's something that, of course, this FX will benefit us in 2023.
That will help us, by the way, invest more without big effect on the margins. That's.
Yeah.
I think we are using it for the good. That's...
All right. Thank you so much.
Next up is Shaul Eyal, followed by Raymond McDonough.
Good afternoon, guys. Gil, I know Rupal is not on the call, but can you maybe talk to us about some of her initiatives over the course of the past, a little less than a year, and maybe as we think about 2023, what's in store in that respect?
Which initiative you mean? That's, in which aspects?
All of her initiatives. Sales, marketing, go-to market, that actually you brought up.
I think we are doing a lot of things in Check Point to create a lot of change and a lot of innovation in all these aspects. If you remember, and I think you, we've created the beginning of the year what we call Rockets, that are this kind of organizations that have more flexibility and more freedom to run fast, integrating the go-to market element to the product element. I think we had three Rockets. One was the email Rocket based on acquisition we did, which actually grows very, very fast. I don't know, we didn't mention it much today, but the email aspect, that acquisition is very successful and it's contributing a lot to our growth. Another one is the cloud one. Started the year, the cloud one, we've actually did quite well in fourth quarter. Nice, nice growth in the fourth quarter.
The last one is what we call the MDR MPR, which is the management of kind of managed security for customers. That's a tiny startup, but that's overwhelming response from the market. We have hundreds of customers. We have a nice demand for it, and that's with very limited investment even to promote it. We're just a nice response from the market to these services. By the way, these services or this technology, it's the same technology that we will have in our XPR product, so we're actually leveraging one another. So you can get it as a product in the XPR product or the managed service with the MPR product. With the MPR service that we provide today. Next to that, at the beginning of the year, we've created the new go-to-market organization, appointed new leadership, Rupal Hollenbeck, based in Silicon Valley.
Again, she's building a very robust infrastructure for everything and doing many changes. I think we do them less revolution, more evolution, the Check Point way, and we are doing them nicely without creating, you know, too much earthquakes. Actually, I think you see that it's going well, but she's doing a very, very good job building an organization that can scale to much, what we think we have the potential to a much bigger scale. In the products organization, we also have a lot of investment in many areas, from SD-WAN to SSE and SASE, which is cloud-based delivery of security. The whole, I mentioned the XPR technologies are also quite interesting in terms of new technologies.
We've talked, I think it was last quarter, about the Titan package, which, again, some of it is great new security technology, some of it is really new markets like IoT security. There's a lot going on in our organization. We are building now new model for partnership with our partners. We've invested in the brand last year. I think there is a lot going on in the organization right now.
All right. Thank you. Next up is Raymond McDonough from Guggenheim.
Kip, I've only known you for, I think, half a decade. It's Ray McDonough from Guggenheim. I appreciate it.
I know. I'm sorry, bud. I'm sorry.
It's all good.
I blew it.
It's all good. I wanted to double-click on cash flow, if I could, and Gil, the comment that you made for, you know, shifting towards more of a subscription-based model and more flexible buying programs, so to speak. What, again, the impact of cash flow would be on, or the impact of lower invoicing duration, if you're seeing that this quarter, what the impact of cash flow was this quarter from lower invoicing duration, again, if you're seeing it, and then how we should think about that going into 2023? Should we think about that as being a headwind to 2023 cash flow as we look forward?
I think, again, I think it's tough to quantify, I mean, the effect on the cash flow, I mean, in terms of moving to, in terms of the duration. I would say that, yeah, yes, we've seen less multi-year deals, more kind of the one-year deals that customers intend because of the macro environment, the higher interest rates. We've seen more, less multi-year deals. Effect on our cash flow, something that we should, again, our cash flow was... This quarter was much more back-ended loaded. I mean, usually Q4 isn't back-ended loaded, but this specifically quarter was much more back-ended loaded. We've seen much higher billings in December. You can see it also in our receivables in the balance sheets.
Again, that's also affected our cash flow this quarter. As for the future, again, it's also it depends on our billings next quarter, next year in order to quantify. I mean, again, it seems as long as this macro environment will continue, we probably will see the same. Again, we never know. It's not something that we can project.
Got it. Thank you.
All right. Thank you. Next up is Gray Powell from BTIG, followed by Brad Zelnick from Deutsche Bank.
Okay. Great. Thanks for taking the question. Yeah, so, one for Gil. I mean, just looking back over the last few years, demand across the firewall space has been pretty strong. You all sound fairly cautious about 2023. To me, it kinda sounds like 2023 is gonna be more of like a digestion type year or consolidation kind of year. Feels fairly similar to what we saw in 2016. I think that was sort of like the last, you know, cycle. Does my read seem correct to you? Does it feel like 2016? If so, like just, you know, on a relative basis, like how do you feel today versus sort of the last consolidation period within network security?
First, I think that we have, that there is a lot of demand and there is a lot of need to continue with what we've done on network security. What I see now is a little bit different. It's not just digestion because I don't think that we finished all the refresh cycles and all the upgrade cycles. I think it's more of a huge change in the economy. Again, I mentioned it several times. What I've seen is three good quarters in 2022 that behaved in one way, and then the fourth quarter was different. Again, whether this different will continue, I mean, I've heard some companies saying that we reached the bottom in December. I don't know if it will be that way or it will continue. I hope it won't.
I think from when I speak to customer, and as I mentioned, I did a very nice tour the last few weeks around the world and met with many, many customers and partners. They see the need, they want to invest. They see the value in more security and the Check Point Infinity architecture. I can't do without the but about the economy. Right now, I think it's nothing to do with network security or anything like that. It's clearly the more of the macroeconomy that behaves a little bit different in the last quarter.
Okay. Thank you very much.
All right. Next up is Brad Zelnick from Deutsche Bank, followed by Fatima Boolani from Citi.
Thanks very much. Gil, just wanted to ask you about the buyback. It's good to see the continued discipline.
On the share repurchases, but why cap the quarterly amount at $325 million? Is there a scenario where opportunistically perhaps you'd look to buy back more stock? Related, is this a time to maybe get aggressive with M&A? I mean, We all know there's a ton of great technologies out there, in some cases, you know, companies that are having trouble raising funding, maybe to do something even transformative. Thanks.
First, both of your questions are right on spot. There is a possibility that we will increase it if we need to. Far again, I think we've been doing that policy for buyback for over 10 years, and it worked well. Again, there's no way, I don't have any objection to see that if there's an opportunity in the marketplace, we will increase the buyback. I hope, by the way, it will go the other way around that in the buyback. In terms of opportunities to acquire companies, you're absolutely right, there will be more opportunities. Still, I mean, when I look at the market, and we analyze it all the time, it's not that we don't do it.
On a public market, the valuation starts to change a little bit, even though still you can find a lot of cyber companies that are losing tons of money. I'm not sure that what you want us to do is to buy a company that will cause us to start growing from, you know, very nice earnings to fund their business model, which may or may not be justified over the long run. I mean, that's one challenge. On the private market, I think we will see some opportunities in the future. I'm not sure that the valuation reached the level that we need to reach yet. We do get once in a while a call from a company that we think is interesting and reached this point of time that it may be interesting.
We've made many acquisitions. If you look, we've made, I think, like 18 acquisitions over the history of Check Point. Over the last three, four years, I think we made like six or seven. It's not that we are not active on the M&A frame, I think in the future, there's definitely an opportunity that we will do more. By the way, that is a good reason to keep some cash, especially if we will find something more transformative. Not that I'm underestimating, spending $few hundred million on a company is also a big bet and a big investment, maybe we'll find something even bigger, it's good to have some cash to fund that.
Makes sense. Thank you.
All right, next up is Fatima Boolani, followed by our last caller, Sami Badri from Credit Suisse.
Good morning. Good afternoon. Thank you for taking my questions. Either for Rupal Hollenbeck or Gil Shwed, but I'd love to get a more financial and quantitative perspective on this. Going back to your margin guidance for calendar 2023, we are seeing a compression in spite of the fact that you will benefit from the stronger dollar more visibly in 2023. What I wanted to understand is, as you think about the go-to-market organization, the sales capacity, the productivity trends that you've been seeing, and maybe attrition trends you're seeing, how is that changing, if at all, in 2023? Where can we see potential uplift or if you're changing any incentives to drive some of this new product adoption?
I'd love to get a little bit more granular on, you know, why we'd still, you know, underneath the hood, if you will, from the FX impact, still see margin compression. Thank you.
First, I mean, before I jump, Ruly might add some more value with the numbers because you asked about the sales force and so on. I think in 2022, we grew the number of sellers, the number of frontline salespeople, by like mid-teen percent. In 2023, we still plan to grow it by a double-digit number. Again, I think we will adjust it according to the economy, we've already started the year with many people that were in the process and in the pipeline in 2022. It's not just a question what we'll decide in the second half. We've already started with a strong momentum. Again, when you By the way, in the U.S., when you hire somebody, they join in like a month or so. That's a cycle that's relatively short.
In Europe, the cycle is usually six months. If we have somebody that started in January, it may be somebody that we've started recruiting in April, and we've signed the contract in, kind of July, August. It's not, it's a very long cycle. Again, our sales force is very distributed around the world, not U.S., not necessarily U.S., dominated. We keep the investment on that. We do want to use some of the FX trends that we have to invest in our workforce. Some of it may be in the existing sales force, some of it is, again, to allow us to recruit more without any major effect.
Remember, if I would say that we grow the company by 5% or 10%, the impact on the margin would have been much, much bigger if we haven't using what we have. What else are the trends that are impacting that? There is a trend in general of providing more cloud-based solutions, and many of our products with technologies are now delivered from the cloud or are using the cloud. The margins on these are usually lower than the margin that we have on just software or even in some cases on just appliances. Cloud is expensive, let's remember that. Our cloud expenses are high. Like everything we do in Check Point, I think we manage them, and we do them far more efficiently than most companies that we see.
We see it on M&A, that we have a very efficient operations. I think we will keep investing in that because it makes sense, and that's gives us an opportunity to bring many more technologies to the market and up the level of security.
Thank you, Fatima. Next up is Sami Badri.
Hi. Thank you.
Our last question.
Absolutely. Thank you, Kip. My question is on any visibility you can give us on the Harmony product portfolio. That's my first question. The second question is, when I go back to one of your product slides on Blades, you put a reference in there that the Blade product is now optimized for 1,000+ applications or other type, maybe vendors or integrations. Can you describe or maybe elaborate on how hard it was for you guys to get to that point, and how many other vendors actually have comparable integrations for a very similar type of product or solution set?
I think what you meant with the Blade is the SD-WAN Blade. Again, we have a software architecture that we call Software Blades, which we featured many years ago, but it's still a big part of how our products are being built. Now we build the SD-WAN Blade. The SD-WAN build is very robust. We've, we're supporting, I think, well over 1,000 different application, and we are optimized. I don't exactly remember, but I think it's 2, 3 times even more for supporting more application and optimized for more application than our direct competitors. By the way, part of it is the investment in SD-WAN.
Part of it is the fact that it is integrated, it's not a different product, and it leverages the know-how that we have about the deep analysis of application that we already have on our network security product. That's there. Anything I didn't answer, so I think that's the. I hope that our SD-WAN product will reach market success that it deserves, and I think many of our customers are waiting for it.
Just the Harmony product portfolio visibility. Anything you can give to us for 2023?
The Harmony is comprised for many different products that are securing users and access. Some of them are growing very fast, some of them there's, we have different strategic thoughts on their future. The one that's growing very fast and the one that we are very happy with is the Harmony Email. Doing extremely well, reaching, meets all the expectation from an important acquisition like that. Integrates well with the rest of our technology. Like our anti-malware engine is used in that product. Their anti-phishing engine is used in many of our other technologies. Everything that I said about centralizing this ThreatCloud brain is working well. Sales are integrating quite well.
If in the beginning they had the separate sales force and that's what brought most of the growth, now most of the big part of the growth comes from the Check Point Enterprise sales force. These are all the right signs because that means that we can leverage the Check Point engine, reaching more customers and reaching more places. Let's not forget, for years I've been cautious about whether we want to enter into the email space or not because it's a crowded market. I'm very happy we did. First, because we see the success, but mainly because most of the attack starts with an email, so it's really important that we are there. Our competitors, by the way, are not there, so we know how to secure that email link and especially the cloud email, which is where the world is going to.
I think that should... I mean, if we do it right, that should give us many years of success and growth because the market potential there is very, very high.
All right.
Thank you.
That concludes our call today. Thank you all for joining us. We look forward to speaking to you throughout the quarter, and we'll see you at the next earnings. Thank you and have a great day.
Thank you very much.
Bye-bye, guys.
Thank you.
Bye-bye.