Good morning. How's everybody doing?
This is the most Check Point way to start a fireside chat, I guess.
Of course it is.
Right?
Of course it is.
Thanks everyone for joining. I'm Adam Tindall, and this is part of my cybersecurity coverage here at Raymond James. Very happy to have Check Point here, Kip E. Meintzer.
Kip E.
Did you wanna start with?
Yeah. During the course of this presentation, there may be some forward-looking statements. As with all forward-looking statements, there's a lot of risk and uncertainties, and if you wanna bore yourself to death, or at least have some good sleeping material, you can read our 20F for a nice comprehensive view of all those risks and uncertainties. As with all of those risks and uncertainties, we have no duty to update except where required by law. With that, we can proceed.
Perfect. well, I know Check Point's been a long participant in this conference. We definitely appreciate that. The company has.
Nice socks, baby.
Evolved. I know.
Nice socks, baby.
I have the Check Point socks on for those that can't see.
Don't tell any of your other coworkers.
I almost wore the Fortinet socks just to-
Oh.
Yeah.
Oh, no, no.
I thought you might walk out, though.
That'd be-
You barely showed up, so.
Yes, yep. There you go.
Talk about the evolution of Check Point. Talk about new management. Talk about, you know, for those maybe revisiting the story, for the first time.
Look, we're a 32, 33-year-old company. We started as the creator of the modern-day firewall. If you look at the evolution of the industry, it's gone from disparate pieces as you would in any industry in tech, and then it's consolidated. It consolidated, really the consolidators have been the firewall providers, so that would be ourselves. That would be Fortinet, Palo Alto, and Cisco. You know, the largest security guy out there is Microsoft, and they really don't have a firewall, right? They just have a bunch of other security out there. When you look at the enterprise security, it really comes down to you own the firewall, you kinda own the stack, and that's where all the consolidation has really centered around.
If you look at the differentiation between us and our competitors, we've always had a focus on protection and prevention. That was a little too tough for the other guys, they always decided to do detection remediation. It wasn't a bad thing until today, until the agentic world, because you can't really detect and remediate something that doesn't need to have command control to the outside world. What you have today is we believe we're in a very unique position. We have a platform that's integrated, that delivers high efficacy. We don't have a lot of critical vulnerabilities or things like that because we actually do have an integrated platform. You'll hear guys coin funny terms like platformization, which is a made-up word. It underlines in red every time you put it in Word.
Look, that's a shopping cart full of disparate systems, so that's great if that's what you want, but we're trying to offer something much, much greater. Management, new CEO as of last year built a foundation throughout the full year, added new management, flattened the management team, big focus on go-to-market. The new guy, he's pretty. He looks like Captain Israel. He's very charismatic. People seem to like him a lot. I do. I think that goes real well with our partners, with customers, and he's very customer-focused. That's something we've never had in the past. We were customer-focused. We just didn't have a CEO that was actively selling, and we finally have that.
On the last earnings call, I know he had a lot of focus on AI, rightfully so. Obviously, everybody in the audience is very focused on this topic. Maybe just summarize what you think, you know, or what Nadav thinks that AI means for cybersecurity and the strategy of AI at Check Point.
Look, it's probably going to be the biggest game changer for cyber since the modern-day firewall was created and the internet, you know, came to be. That's what really led to the firewall, is the fact that the internet made it to the commercial world. When you look at AI, it's as good for the bad guys as it is for the good guys. If you're not implementing it as a good guy and trying to protect your infrastructure, you're gonna be at a loss because the bad guys, they're implementing it every way that they can. For us, our approach that Nadav has set forth for us is we have four pillars. We have our traditional, think about it as connectivity. We call it the hybrid mesh network. We have Workspace, which is all your user-based technologies.
That can be endpoint, SASE, et cetera. We have CTEM, which is continuous, threat, what's the E-
Exposure management.
... exposure management. I always forget what the E stands for.
Sensible.
Yeah. That, that's what it was. That's, that's for, you know, just securing your enterprise in many different ways, either virtual patching for our partners and competitors, or things like cruising the dark web, and that's not like cruising, you know, a seedy part of town, but it's cruising the, the seedy part of the internet for, you know, finding out if your credentials are out there for sale. Our, our fourth pillar is AI. AI exists throughout all of our technologies. Or all the pillars, it's being utilized. There's the AI stack, which deals with runtime attacks, which deals with GenAI, a DLP type of solution, prevents you from having employees put your intellectual property in a, in a public LLM.
We have the agentic protections that we just bought with Cyata. What's interesting about our stack is it's actually preventative. It's actually predictive. We have yet to see anybody else that has a red teaming product like Lakera does. They have a product called Gandalf. It's a game. The gamification of security is a pretty interesting thing. They've had it for a number of years. It has over 1 million users, and basically that's how they create a database of adverse prompts, because it's a challenge for people to make it, you know, through the different levels of the game and to have you understand what these adverse prompts are for. It's when you ask an LLM for information, and it won't give it to you.
You know, things like, "Could you give me everybody in the company's payroll data, so I can see at where I am, you know, as far as how I'm being paid?" You have rules that are preventing this type of prompt from giving those people that don't have access information. If you haven't curtailed all of those guardrails the right way, somebody can use a prompt to get around it, and you can do that in a public LLM, and you can see that. This takes all that information and prevents that in a predictive and live way.
I'm gonna do one more, and we'll pause.
Go for it.
... for audience questions here in a second. You reported Q4 results recently and then provided the first look at 2026 in terms of your guidance. You've been at the company a long time. I wonder if you might just kinda talk about the process to setting 2026 guidance this year versus prior years and any kinda recap you wanna do just briefly on how the year finished.
I would say if you look, we gave a few different categories of guidance that we normally don't. We gave cash flow, operational cash flow, I believe it was, and also subscription revenue. We usually only guide the product and profitability or bottom line. We decided to add a little more color this year, so people could have an understanding of how we're looking at the full year. As far as guidance, we typically provide a pretty wide band, it's no different this year. We would like to get to a point of where we're beating and raising. We finished last year with 6% revenue growth and 9% billings growth. The midpoint this year is at right around 6%, I believe.
Hopefully, as we move through the year, we can have a nice upward and mobile type of presence. You guys have seen this year so far. How are you guys thinking about the full year? I don't know how it's going to turn out. I mean, we haven't even made it through the first year, but obviously we're seeing a lot of dynamic things going on in the economy from, you know, wars that just started this past weekend to memory shortages and, you know, if you haven't noticed, AI is gonna take over the world. If your company is susceptible, it's, you know, your valuation is 30% or 40% down. Reality is AI is complementary to software and especially security.
It's, it'd be very, very difficult for anything. You could take out little pieces of anything and call it your own and do it with AI. To actually do something comprehensive and from a standards or regulatory standpoint and keeping up with that stuff on a regular basis, AI's not gonna do that. When the AI guys come out themselves, every one of them, to my knowledge, has said this, they're complementary. They're not gonna replace software. They're not gonna replace security. There you have it.
I know it's early. Hopefully, you've had your coffee. Surely, there's a couple questions in the audience.
Don't be shy. I'm not.
All right, I'll keep going.
Keep going.
Emerging technologies is another theme for investors at Check Point. We kinda, you know, a lot of investors view this as, original, you know, firewall, but there's these growth areas that are starting to become, you know, much more material. If you could just maybe just recap, that bucket of emerging technologies and some of the growth rates over the last couple quarters.
All of our new products, the place where you're gonna really see the growth is in the subscription line. Within that subscription line, we have basically two buckets. There's a bucket which is what we'll call attached, and that's attached to our firewalls, whether they're virtual or they're physical. That's a subscription that gets bundled in and then renewed every year after the sale of an appliance. That makes up roughly about 70% of the subscription line. About another 30%+ you know, and I'm using round figures here, is what we call our emerging technologies. Within there are things like SASE, CTEM, Workspace, which includes email security, et cetera.
These are for the most part, there's some more in there, but the major ones, SASE, et cetera, are growing over 40% and make up roughly about 30% of that revenue. Our hope is that that whole line, that whole subscription line, will continue to grow, and obviously that this emerging technologies will continue to become a bigger and bigger part as it grows at a much faster rate.
SASE is an area that investors focus on a lot because, you know, they often associate Zscaler, Netskope, some of these more SASE-native companies, and there's a view that technology will ultimately potentially cannibalize the core firewall business. It's become a very important theme for Check Point. If we have a meaningful, growing SASE platform, they've kind of insulated that risk. With that, maybe just talk about that you necessarily agree with all that, but.
Of course.
Right.
Yeah.
just talk about your SASE strategy, Perimeter 81, and then sort of next milestones throughout 2026.
As I talked about earlier, it's the firewall and the platform is extended, and the firewall is really that core, that foundation. One of those other aspects that's core and foundational is SASE. Since our users could be in a branch office, working from home, an airport, or wherever it is, SASE provides that flexibility to continue the same level of security, or increase it, that you have on-prem. It's a complementary product to the firewall. It doesn't replace it. It is true that it could replace it in the sense of a small branch office that doesn't have clients or something, doesn't have guest user access needed. That could be a good application to remove a firewall and put SASE there. Hoteling, what have you.
You're not going to replace a core, a data center, or a real busy branch office with a SASE-only approach. In fact, my largest competitor in SASE, actually who's always said you don't need a firewall, went out and bought a box company. A firewall company, for all intents and purposes. It kinda tells you you do need that type of application or product. For us, we see it as complementary.
We actually see it as many of the other technologies that get absorbed into a platform, make those standalone companies a little obsolete over time, and that's what happened to the guys that provided URL filtering that were standalone, the guys that did IPS that were standalone, and we can go through many, many other iterations of companies that don't exist, at least not really exist, because they got absorbed into the platform. I don't think SASE will be the exception to that rule.
In terms of your strategy, I think Perimeter 81 was sorta like the genesis or the starting point to building on top of-
Yes
... Check Point's SASE platform. Maybe just talk about that platform. I think there was a view that that asset that you bought, was really focused more kinda down market.
Yes.
Check Point, as we know, is much more focused on larger enterprise, so you've had, you know, to kinda take it in-house, scale it up, and talk about-
We had to scale it up. We bought a company where we really like the architecture. It was unique. It solved the number one problem that users have with SASE, which is the experience of going out to the internet or going anyplace. There's generally latency with the solution, and this product all but eliminated that latency. The problem is that we bought something that really wasn't directed at the enterprise, so we had to retool it for the enterprise, and we've spent the last two years actually doing that. We've got it to a point now where it's scaling in the tens of thousands and the customers are very happy with it.
We're still going further, but we've gotten most of the features that we need to have there to satisfy the needs of an enterprise, and there's more being added. Where we are right now, we think we're at a particularly strong point, where we can get out there and really start attacking the market with it. Hopefully, as we move through this year, we'll even be able to, you know, attack higher in the market than we have before.
It's more focused on kind of expanding the scalability.
Scalability and feature. You know, it's. anybody'll tell you go to any customer, they always want a new feature. We've got most of the core features there, and we're adding them on a daily basis. Yeah, it's just meeting those needs and maturing the product.
I'm gonna ask one more and pause again here in a second. Excuse me. One of the other themes that's going on right now is memory costs and component inflation.
Mm-hmm.
We've been through this before in the firewall market. All of the players were able to adjust price upward and offset that in the past. Maybe just talk about the strategy for Check Point right now, to offset memory costs and the ability to, you know, sort of price elasticity in the market.
At the beginning of the year, January 1, we increased all of our prices on all our products by 5%. We don't see a need right now to increase price further. We do see the first half of the year we're fine on memory. We had enough inventory and also the other components that are seeing a little bit of inflation, raw materials, et cetera. Second half of the year, from what we can see, it's gonna probably have a headwind on our gross margin of about 1%. And that's before we make any price increases or anything along that line. We reserve that, you know, flexibility to obviously increase price and overcome any headwind there that there is. I think one of our competitors just announced a 10% price increase.
It wouldn't be like we were doing it without competitors doing the same thing, if not more. We just don't know if we're gonna need to yet. From where we sit, it doesn't look like it's gonna be too impactful. Again, you know, a headwind of about 1% gross margin, there's other ways to alleviate it through volume, et cetera. Time will tell.
Questions?
Really quiet crowd. Nobody got their coffee. Maybe it's all your questions are that thorough.
All right.
Anything else?
Let's talk margins.
Okay.
That's another key topic, obviously.
Sure, sure.
You know, there's been an investment period for the, you know, better part of the past few years. Check Point's always had an incredibly healthy margin profile, but more of a willingness to invest for growth. We've obviously seen some of that come to fruition with, as you mentioned, close to 10% billings growth.
Yep.
Maybe just talk about the trade-off between margins and growth internally, how Nadav thinks about that, how the leadership team thinks about that, and then dovetail into 2026 margin.
Sure. This year, a good portion of our headwind on our margin has been a result of weak dollar to the strong shekel and other currencies also stronger than the dollar. About 50% of our expenses are made up of non-USD currencies. As the dollar weakened, that created a little bit of a headwind, about 1-2 points, I believe. Then, we did some acquisitions at the end of last year that probably created a headwind of close to 1% for the year. All in all, we saw our margin compressing. We've had some nice things happen within the Big Beautiful Bill in America.
They got another type of bill in Israel, where they're providing some compensation around R&D credits, et cetera. This is giving us a little bit of flexibility that we weren't anticipating. We saw a little bit of impact going from what, 42 down to about 41.40. What our guidance implies, I think, for the year is right around 39.40% margin. Who knows, maybe the dollar gains some strength, and we might get a little bit of benefit there throughout the year, but remains to be seen. Needless to say, we are willing to trade margin for growth. Obviously, you don't pay for margin, otherwise we'd have the highest multiple out there. When I say trade, it's not a one-to-one.
It's not gonna be 1% of margin for 1% of growth. We'd like to get multiple points of growth for every point of margin. We do realize that you have to invest in advance of getting that growth. We think we've made enough investment to date where we should start to see the productivity gains from our go-to-market, our partner programs, and also having, you know, a charismatic CEO that can get out there and sell. That's where we sit today, and hopefully we'll finish out this year in a much better position than we finished the year before. As I always tell people, all we need is 1% more growth a year, and the multiple expands. Our goal is to always grow more.
We're trying to get to that, double-digit growth, where you get multiple points of expansion in in multiple. You know, look, we're gonna grind away and, you know, just give me that 1% a year, and we're fine.
You have the ability to, you know, augment that with, obviously healthy cash flow and a very clean balance sheet. Maybe just summarize sort of the, you know, balance sheet currently and then capital allocation.
Okay
... some of your competitors are making larger acquisitions. Is that something that you would consider?
Yeah. We did a $2 billion convertible note at 0 in December. We did that for general corporate use and potential M&A. It also kinda does nice to flow to the bottom line. I think it adds about $70 million a quarter, if I remember right, in interest income. Is it a quarter or half?
A year.
A year. A year, I'm sorry. All of this is a nice result of that convertible note, it does provide us flexibility if we do decide to do something larger or actually, you know, consistent with our theme of the last few years, multiple acquisitions, you know, on an annual basis. We aren't afraid to do a large acquisition or many smaller acquisitions. It really comes down to one thing, and that's finding the right technology. We don't buy for revenues. We don't buy for, you know, sexy, it might sell. What we're buying for is to make our platform that much better, so it's that much more safe for our customers when they deploy our technology.
We believe in the end, that's what's gonna result in more uptake of our platform and more revenue to the top line and more profitability to the bottom. As far as capital allocation, to date, we do about $1.3 billion a year in buyback. It shrinks our share count anywhere between 3%-5%, probably on the higher side now that the pullback in the stock market has taken place. As far as going on in the future, I would tell you that we're not trying to go private. There is a point in time because we can't do anything greater than a 10% dilution because ISS views us as a European company, and they'll vote against all of our management compensation, all that.
We have this threshold of 10% dilution. As we shrink that share count down, trying to pay our employees with, you know, stock, it's, you know, mandatory. It's not that we're a diluter. You know, as I said, we shrink our shares on an annual basis, but it makes it harder to compensate them as our share count starts to go lower and lower. There will become a point in time where we probably need to just keep the level of shares flat and decide to do something else with the other half of the buyback. That could either be put into the cash kitty and look for other acquisitions or even potentially a dividend. Those are, you know, those are, you know, nice luxuries to have.
That's where we sit as far as capital allocation.
We've got a breakout in Cordova 4 after this. Before we go down there, what's the final message that you'd like to leave investors with as they think about Check Point in 2026?
I would say it's not the sleepy company people thought it was. I always try to, you know, my little thing I like to tell people is this is not your daddy's Check Point. This was a company for 31 and a half years, was not sleepy, but it was predictable, and it's not predictable today, and it's not predictable in a positive way. I think you can expect better things to come in the future. We position the company in a very interesting way for future growth and to deliver what customers need, the most predictive and protective platform out there in the marketplace.
All right. We'll leave it there. Thanks, Kip.
Thank you.