Q3 2019 Earnings Call
Greetings and welcome to check point software third quarter 2019 earnings conference call. At this time, all participants are in listen only mode.
We have question answer session will follow the fall presentation.
If anyone to core operator systems during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
At this time I'll turn the conference over to Kip Meintzer Global head of Investor Relations Mr., Mike do you may begin.
Rob I'd like to thank you all for joining us today to discuss checkpoints third quarter 2019 financial results. Joining me today on the call or Gil Shwed founder and CEO , along with our CFO and COO child pain. As a reminder, this call's webcast live on our website and as recorded for replay to access the live webcast and <unk>.
Play information. Please visit the company's website, a checkpoint dot com for your convenience the conference call replay will be available through November 4th if you'd like to reach us after the call. Please contact investor relations by email it kept that checkpoint dotcom before we begin with management's presentation I'd like to highlight the following during the course.
This presentation checkpoint representatives may make certain forward looking statements. These forward looking statements within the meaning of section 27 day of the Securities active 1933 and section 20 Onee up the Securities Exchange Act of 934 include but are not limited to statements related to checkpoints expectations regarding.
Business financial performance in customers, the introduction of new products programs and pricing model and the success of those politics programs and pricing models, the environment for security threats and trends in the market.
Strategy and focus areas demand for our solutions, our business and financial outlook, including our guidance for Q4 2018, because these statements pertain to future events. They are subject to various risks and uncertainties actual results could differ materially from checkpoints card expectations and beliefs back.
They could cause or contribute to such differences are contained a checkpoint to earnings press release issued on October 28, 2019, which is available on our website and other risk factors, including those discussed and checkpoints annual report on form 20-F for the year ended December 31st 2018, which is on file with the.
Securities Exchange Act Commission.
Point assumes no obligation to update information concerning its expectations or beliefs, except as required by law in our press release, which has been posted on 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, it's my pleasure to turn the call over.
To tell paying for a review of the financial results great. Thank you Ken Good morning, and good afternoon, everyone. Joining us on the call today [laughter] record revenues for the quarter increased by 4% year over year to 491 million dollar in our non-GAAP EPS reach one dollar and 44 cents.
Our revenues were slightly above the midpoint of our guidance and the non-GAAP EPS was at the top end of our guidance.
Before I proceed further into the numbers, let me remind you that I'll get financial results include stock based compensation charges amortization of acquired intangible assets and acquisition related expenses.
Well as it related tax effects.
Keeping in mind as applicable non-GAAP information is presented excluding these items.
Now, let's take a look at the financial highlights for the quarter.
Revenue for the quarter came 1 million above the midpoint of guidance.
Brought back and security subscription revenue was $272 million, a 6% increase year over year.
Our subscription revenues continue to be strong with 13% growth reaching $154 million.
Now, let's talk to update and maintenance revenue increased to $219 million, representing 3% growth year over year dropping our subscription revenues is driven by our advanced solution.
Mainly next generation threat extraction protection.
Oh God solution.
And.
In Sydney.
Deferred revenues as of September 32019, raised 1.242 billion dollar a growth of 94 million dollar or 8% year over year.
Revenue distribution by geography for the quarter was as follows.
46% of revenue came from America.
42% of the revenue came from Europe , Middle East Africa region.
And the remaining 12% came from Asia Pacific.
Since the beginning of 2019 middle East enough to got pod.
Part of Europe Middle East in Africa region, while before with parts of Asia Pacific Middle East Africa region.
The revenue distribution by geography for Q3 last year for comparison purposes. After the reclassification would have been 47% of revenue came from America.
41% of revenue came from Europe , Middle East Africa region.
And the remaining throughout for same came from Asia Pacific.
We continue to invest in our sales force and marketing in order to execute our growth. So I think.
As a result, non-GAAP operating margin for the quarter, where 50%.
Same as the previous quota and in line with our plans.
Effective non-GAAP tax rate fell this quarter was 19%.
Similar to the last quarter's.
Please note, leaving the fourth quarter, we expect the tax rate to be around zero.
The lapse of statute of limitation expected to occur by the year end.
Our expected tax rate for the year remains around 40% of predicting in the beginning of the.
GAAP net income for the quarter 188 million dollar a $1.25 cents per diluted share.
non-GAAP net income was $217 million or one dollar and 44 cents per diluted share.
Our cash balances as of September 32019, with 4.055 billion compared to 4.072 billion last year.
Operating cash flow of 244 million dollar collection from customers continue to be strong our cash payments increased in line with our continued investment in sales and marketing.
During the quarter, we'll utilize nearly the maximum quarterly buyback authorized and purchased 2.9 million shares.
$323 million at an average price of hundred 12 filling it.
Now, let's turn the call of real voice calls.
Thank you fall in the local everyone joining us today I'm glad to have you all on the call and sleeves and provide you with the Beatles more insight on the first quarter results.
As you heard from Paul we continue to deliver healthy financial results in the first quarter, we're seeing a period of changing transformation as we continue to focus in elevating or customers security environment into gets exhilaration of cyber protection.
This means we have taken a portal, we're still quite an ambitious goal.
I think the most of drugs I grew up talking providing an integrated cyber solution for all elements of the modern IP infrastructure network data center endpoint mobile cloud denial.
We continue to extend our cyber security solution consolidation airports, we've been finished the architecture.
And you can be from the numbers weird quarter success with our cloud solution.
Yes, we compute waiting for a much higher growth rates across our business. We're feeling the period of transformation moving from a traditional products business into more often than you would do model, we aim to drive or silver confusion across all over business area.
We continue to expand our global field management and conduct more and feel good marketing activities around the world naturally we would like to see a high growth for tumor, but it does take time and we remain focused on making that happen.
We place a lot of emphasis on the cloud and we believe we had the most comprehensive architecture to secure cloud environments.
And so we've also seen by successfully closed business results continue to be healthy growth percentage remains quite high. Some recent example, nice wins in the cloud based include two of the world's largest accounting for two of the world's largest consulting firms.
One of the world's largest business media for two of the world's largest retail franchise with two of the world's largest spoke exchanges and the list goes on with many of the world stop companies, including shipping for mental health goals in government.
Our recent success didn't just focus on the cloud we're well many project, we will advance threat prevention for network importance in mobile.
One example for such a win is a new customer and energy company in America.
We ask them look amazing true checkpoint.
Recorded.
Think of it takes hours, where the competition simply take me through checkpoint overall refills, but checkpoint has a bigger architecture, we much bridger DCIO.
This is quite typical of what we learn from the markedly in both the qualitative and quantitative research we conduct we see free main reasons with customer to checkpoint.
First is the real time Fritz prevention second is the management capabilities and finally did the complete missile for security architecture.
He is a real World example of a customer experience. This was just happened this quarter.
The potential customers starting testing our cloud guard product, but we go after starting trial they had enough confidence to turn on the real time prevention mode.
During the middle of an IPO process invest where the story turned interesting.
Some blas technology embedded into the cloud word product coal to file which contains some command and control my work that could have looked very good financial information. This model infected file which was centrum very calm tumor bankers account.
The fed fund would have gone through you can just imagine the potential damage to the customer and the investment bank.
Many solution could have been deployed to handle this incident, but using almost any already solution in the marketplace. The cost of the investigation forensic collection and remediation of lease incident could have been enormous between hundreds of thousands to millions of dollars.
Our using the check wouldn't grow dark fiber claimed by offering destruction engine alerts were recorded and no damage occurred.
The cost of lease incidentally, the customer was zero instead, the one hundreds of thousands of dollars were more in beverages.
This kind of incidents happened many times every day in most cases, we don't even here the story simply because the effectiveness of the regard prevention solution.
Unfortunately, our incidence response team is seeing an increasing incidents with have significant impact which could have been eliminated. The organization has been using over a few generation for prevention solution.
Turning to subject to some of the new products to launch in recent quarters in recent months.
We continue to upgrade or security appliance family in July we launched the 16 and 26000 security appliance definitely volume than data center, great models provide threat prevention performance in the range of 12 to 40 gigabit per second on the other side of the scale, we launched the 1500 serious.
Of appliances earlier this month, we starting price under a thousand dollars and the performance between 456 to 660 Mega beats a threat prevention performance.
Model showed the strength of the scale of our architecture and the ability to provide the most comprehensive security architecture or pricing performance levels.
As you addition to what we're familiar with product was the cloud gold connect and cloud guards edge solutions.
Cloud connect allow the utilization of the same security architecture through cloud service connecting branch office directly to the cloud with no on premise equipment. It opens the door to many new opportunities and is fully integrated into the same policy and management tools.
Fueled by our customers.
One change we've also implemented with the new appliance models is simplifying the subscription process.
As we discussed previously with the older models every appliance included the bundle one year next generation for prevention subscription and the customer could choose to upgrade in addition, the customer had to choose the support level. They required in the second here very hard to renewable.
With the new model, we're simplifying the process the applying to provide than in a basic configuration in the supporting security subscription or bundled into a single offer we pre levels. So the first during the following year looks the same and if there are fewer in simpler choices to make.
All customers receive boxes to seven by 24 support services. This new model shift even more revenue into the annuity part of our business model.
It's too early to measure the effect of this business model changes, we will always be the full impact a few changes in the future.
Talking about business model makes a nice revision to speak about or projection for the next quarter.
No we regular caveats, it's hard to predict the future. There are many promising build and results there were lot of our known but can impact results.
We've got our revenues for the fourth quarter are expected to be between $527 million to $557 million.
non-GAAP EPS is expected to be between $1.93 cents to $2 enforce them.
Got bps is expected to be approximately 19 cents slower.
Thank you and now we'd be happy to answer your question.
Thank you.
At this time will now be conducting a question and answer session.
So that we may address questions or is there any participants as possible. We ask you. Please limit yourself to one question and one follow up.
If you like to ask a question today. Please press star one from your telephone keypad and the confirmation Telnes indicate your line is and the question Q.
You mean first start to if you'd like to move your question from the Q.
For instance, using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.
One moment, please only poll for questions.
Thank you first questions from the line of Brent fill with Jefferies. Please proceed with your question.
Okay. Thank you Keith if you can just comment on some of the increased investments in sales and some of the productivity enhancements that you're seeing.
Particularly in North America would be helpful.
In North America, we continue to invest into sales and marketing organization and one made a big change, but we were between conducted last quarter is the appointment of a new leader, we hired the new President for day Americas.
Crisco lung.
He had been lots of experience in our industrial we've our channel and we've also hired few other people in the telco space in the and the channel space for the American, but I think this new high level appointment should that take us a long way and should provide a lot of leadership and a and support for.
Phil people in the Americas.
[noise].
Next question about 300 over next questions from the line of Michael Turits Raymond James.
Hi, going talk to the extent you can can you comment make.
On overall demand.
For security and what you're seeing any weakness isn't a geos Europe anything on the telco service provider side.
I think overall demand remained stable remain healthy and I think our market.
Enjoys a very high level of demand enjoys I think at very high level of strategic view on the upper end suffers from a lot of fragmentation in the local say confusion there were lot of competition.
In all aspects I mean, all sizes, but overall I think demand is quite healthy and I haven't seen any a.
Specific.
[noise] issues around that.
Okay, and then if I get a follow up as you said you mentioned, Chris Scanlon, there's been a lot of changes in sales management in general Frank Raj came in I don't know something like year ago.
There have been other changes the level below them as well can you just discuss what types of changes strategically you expect and where you are in that process.
I think we won somewhere.
I think first we have people that they're doing a very good job and again this quarter I was very pleased to see with many.
Many wins, but we've seen all around the world I think what we'd like to do we used to when you first gets more gets more new customers. That's a big focus by the way this quarter, we did see a nice increasing the number of new customers.
I would like to see more emphasis on the new strategic areas well the market like a more bodily advanced threat prevention in the cloud and again, we've seen nice successes in all these areas. The cloud <unk> business was very healthy this quarter.
So, let's say that quite a good sign from <unk> perspective, I think we can do much better on the product business from the traditional product business more gateways to more companies more refreshes and more new customers with each of them area, but even full consist a big part of our business than we were doing what we can do much better.
Sure, we've got and love to not least these enhancing go where relationship and doing better we've always partners in all places in all segments. Both we've always a traditional channel partners.
Yeah renewed the energy for the telco six door.
I see some integrate doors and even adding a new partners, which will help us.
Hey, good two way get to more customers going, especially in the new areas like a cloud it places so I think I've.
Capture the very broad big picture, but I think games for the for two minutes I think it's a very broad picture for what you're doing.
Thank you very much guilt, though.
The next questions from the line of Shaul Eyal with Oppenheimer. Please proceed with your question.
Thank you good afternoon, guys a wonderful Gil one for Tom deal that this is something up asks about last quarter. So with respect to be engaged plan not a frequent flyer Apple plan.
We would love to hear about any update you can share what else from a customer's perspective also from the channel.
[noise] they'd be engaged planning the new plan, but we created we've all were partners to really engaged the partners being there.
Point activities.
Robert when they're you know usually when you discussing with partners. There's a lot of discussion about margins about the final answer which are all this time, but they don't drive the daily work in the field and I think what we'd like to do is drive the daily work in the field and that's where we created the engage often be engage program that will incentivize our channel partners.
The sales rep level to do more work we've asked them go to customers I think it's being received world a I don't have a specific update about the the usage and so one but from what the here, it's coming up quite nicely and I think when wheelbase next year and next year partner levels.
Yeah on on in Big part on the engaging program and I think again, we've heard would feed the big about that and I think in the next two two months, we'll see more about how would shapes up in which partners game level because of its been oxy, even because they were going to more activities in which partners may need some.
More portion there and now we can see based on their activity levels.
Understood and deal or tell adds as you further think about you know that he I'm going shape since you've indicated that the business model towards an annuity Caribbean, one or would there be any architectural changes to your appliances now they're really in other words.
We could we be seeing checkpoint.
Embedding a I don't get more eight think like you more hardware in its appliances to accelerate throughput and performance down the road.
Yeah, I think its response that wouldn't be our focus then I'll explain why I think the main issue.
Yes, we can drive sometimes more performance more basic performance through hardware acceleration, but what we're seeing more and more is the biggest challenge is actually in.
In the more advanced threat prevention capabilities and in being flexible in and driving to the change it seemed to print landscape and I think very small to stable environment. It's not an environment. When we said the roadmap that's an environment with the threats in in our world are setting the roadmap and I think one that's prompt we've seen.
A lot of success with the open architecture, but we are utilizing we've been most federal software I think we demonstrate that again customers with test our product in that see the superiority of security and we hear it from almost every customer that they've gone in depth to the analysis and what we've found the overtime, but in order to do the right.
Architectural reason open architecture and 86 with can do a good job in in accelerating very simple operation simply say when it comes to advance the advanced capability with security needs. So most of our refocus you're going to remain on the open architecture and but we are developing.
Thank you so much for that.
Our next questions from the line of Brad Zelnick with Credit Suisse. Please proceed with your question.
Great. Thanks for taking the questions. This is Ryan Macdonald for Brad.
My first question is for Gil I last quarter, you announced a new high and appliances and while it's still early on in a product lifecycle can you speak to the conversations you're having with customers around those appliances and if you expect to see any short term impacts from customers potentially trading down to slightly lower tier apply.
Sciences is what we've seen in the past with product introductions that have significantly increased performance.
[laughter].
So I think we're seeing good wouldn't give him.
Hi, good acceptance for the new applies model both the 16 following this with 26 call them and another one by the way, but there's a lot of failure to the market is what we called the my Astro Orchestrator. The Meyer to my for is actually quite revolutionary wafer. We came in earlier in the year or the beginning of the year.
And he's already actually starting to gain share and get into the market in the nice volumes and maestro basically allow to take several of the appliances and turn them into a super appliance with much higher performance was much higher level of redundancy, what we called cloud like performance.
Very high level of flexibility on very high level of resiliency and I think we're doing think would directionally that right now I'm not seeing a lot of say down shift for appliances, I think by the way, but also some of the changes that we've made to be applied subscription model tried to help invested the basic appliance may go.
So maybe slightly lowering price with the new appliances, but the subscription is somehow compensate for that them given to customers simpler and easier way to way to a column four events and then you would you side of business. It what they also like to comment on vessel all that together said so far what.
On that.
The two sides of the new appliances, which I think it being received quite well. This the only thing, but I would say that we see but for large project in large customers. It's actually takes a long time to moves when you model I mean, I expect when when we come up we have a new model from within the consumer I'd like to move to the new model. The next day.
What I'm seeing a decision cycle two big enterprises, but he takes between man.
Three months to not even modest and sometimes even more to get them. You were two new model into the same site because many times, there's an RFP already with the old model. Many times customer needs certification, and then I hope and and so I mean, the cycling slightly slower than what they like it to be well.
I'd like to see all the new customers all the new deal coming with the new appliances.
Great. Thanks that was really helpful and a follow up for tell if I could can you just remind us if there were any large deals that impacted billings last year.
You are facing tough comps on a year over year basis, and can you remind us if there was anything Q4 that we should be paying attention to thanks.
In Q3, we at both in Q2 last year, ending Q3 last year, we had their large deals like deals. It means over 50 million. So yes. They all ideas in both Q2 in Q3, which did not happen and we didn't expect to happen in Q2 in Q3 days here.
He will far I'm trying to think if there was very large Ron I don't remember these size like over 50 million in Q4.
Okay. Thank you.
Thank you. The next question is from the line of a T map Velani with CBS . Please proceed with your question.
Hi, Good morning, Thank you for taking the questions deal I have one for you and Tal one for you as well yeah, we've seen the cloud security portfolio, what checkpoint expand pretty nicely over the last year, you're doing Kathy you're doing cod, Luckily protection, Oh cloud security posture management I'm wondering if.
You can speak to you if you have any bundles associated with these cloud capabilities and you know to the extent you'd be willing to you or what started breaking out cloud specific revenue a in in the financial model and then I have a follow up for Tal.
[noise] am I think we aren't you are right, where I think good traction weve the cloud product. It couldn't be stopped me say actually broke similarly, we've been lot of beat doesn't vitally cloud in general is one of the more sophisticated then you can even say confusing markets. Because there is many things that are called cloud.
Hey, EM, but overall, we're seeing very good traction on that they both on securing the cloud we've always technology also on the cloud management than the cloud they comply inside of business and we're seeing a good traction and also for the New York technologies like the cloud going fast with secure.
SaaS applications I know for 365, and so on and we're not in there we don't intend to break their revenue down based on the specific family simply too small.
Some of the pro the families are too small some and in terms of bundling that first we do all her one on or not but the one strategic value, which is part of being Phoenix D.A.
Model, but we have.
In the future I think we will see I'm not sure. If my colleagues bumbling I think we will see sums you wouldn't create the bad business models around the cloud because when I think we want to offer it much more revolutionary argued pictures and technologies around the clock.
Fair enough and Intel for you I'm just looking at deferred revenue I don't think we've seen this type of by seasonality.
Or sequential downtick in deferred revenue growth since at least 2012 based on my model. So I wonder sometimes gets things that we should consider here that could potentially be weighing on the gross at this metric.
So it's basically building that's what you seem to be Fad. If you look year over year. It was if I recall, if you look at the short them growth in deferred revenues. It was around 8% if I remember I think if you looked.
Okay starkly like in 2018, and 19, you had some corridor with 7% eight per say, 9% 11, 10, eight so I'd say pretty much in the same vicinity.
Longtime didn't change if you look year over year long term contract or long term deferred revenues this quarter increased year over year again by 9%.
And if you look last year, both in Q2, three and four and even these are you seeing 11 to 15, 16%. So obviously, we see less dealing with a long Dan and defense revenues, which is affecting that dr. growth in that he said living.
Thank you.
The next questions from the line of Gregg Moskowitz with Mizuho. Please proceed with your question.
Great. Your line is open for question.
Hi, Thank you very much and hi, guys a follow up on Michael Turtis question, If I may.
Sure our revenue growth in a may actually showed.
Good growth on a sequential basis and on the face of it that was I would say, perhaps a little surprising just given some of the caution I think many of US had been hearing overseas or Conversely here in North America revenue declined or roughly mid single digits on a sequential basis and you know as it was probably a little weaker than I think many would've thought and I'm just kind of wondering if you could comment on both of them.
These regions just from a demand perspective or more specifically, if you're seeing any changes at all in the competitive landscape.
I think both areas remains very very promising to potentially in the Americas is very hard to potentially Europe is also very high we're far from a you know were reaching the potential of the market. They I think the same is true forward into Q shouldn't we can do better and we can generate the best a reason.
Also on the on both sides of the Atlantic Ocean Am I'm pleased with some of what you've seen in Europe .
So I mean said I think we are we're investing more and more in the Americas and by the way. The Americas is not one size fits all when I on the lives. It's I'm seeing gave everybody always true both in Europe and in the Americas, We all know lot aligned our region in both places I see regions that have been tremendously well this quarter and they see region, which were struggling a little.
And that's true in Europe , and restroom into your west.
And actually your what I was pleased to see because they've done a lot of Indepth analysis. This quarter. He's seeing some of the regions in the was the third starting to show signs of would recovery good wins and the in the right level of say execution, but they expect.
That's helpful. Thanks, Gil and then just a follow up on a cloud guar connect which you talked about in your prepared remarks.
One of your close competitors has been doing quite well here. Another competitor recently announced plans to enter this market and so I was wondering if you could talk to how well you think your integrated offering will compete there.
I think first we have a terrific offering and I've tried it it's actually a very easy you can just that go on the web gets up and running connect the branch office or connect few users very easily we they we've really few minutes no training [laughter] really simple onboarding process would you.
Well its people expect from a cloud solution like that we go with process I think the diverse too big Differentiators in what we have.
Don't know by the way the competitive landscape is very easy revit. The simple to turn on it would be very hard to compete we live what I've seen we've always product what they definitely can say is one needs to think that differentiate hours is why didn't the level of security, we provide much higher level of security much higher level of threat prevention and as such.
Second is the ability to tie in to do overall.
Enterprise management, an enterprise a set of rules or I mean really being part of the same enterprise solutions, we've built or solution is to support the red to be part of it then the we're seeing some nice demand.
I am.
I I don't have very high expectation from from immediate results with what does it because I think that some of the targets markets, but we have our the large customer them, they're very well interested but we take some time to wallboard into shift infrastructure, but it's definitely a promising area, but we have.
Great. That's helpful. Thank you.
Next question is from the line of Karl Keirstead with Deutsche Bank. Please proceed with your question.
Thank you Gil Ortale, the our 77 the already U.S. migration is obviously an ongoing in your installed base, especially in Threeq you as a lot of customers face the our 77 and to support a date in September it can sometimes be hard for us on the outside to determine whether a big.
Wes migration like this is a catalyst to upgrade or a reason perhaps to hesitate I'd love. If you could share your thoughts about what you're seeing a with that migration issue in Threeq, you and how you expect it to play out in Fourq. Thank you.
First of English so it's a very good ponton again, what we're seeing in many times of the high level macro level is very different when what customers are facing would you exactly which version in which awareness and Dave.
And a lot of technical detail that all right.
I will know where a customer.
I think what we want them pleased to see that the the majority of foreign customers now a renewal rate deep that's very very good we're still a portion of minority, but still an important portion but haven't migrated to our 80.
We are supporting them, we wouldn't do where we're in we're supporting both what we're doing now in will support vetting migration to our AC because we'd like them to have delayed the security and I think if these critical prevent to enjoy the latest security features that we are and how does that impact the migration or would the sale.
Very hard to say for me again, I'm seeing some customer the latitude to help them. If it wasn't some for when things were easier I'm seeing debris customers when it's a no brainer and the a and they like the situation, which we already knew that we are weak. So it's just so I I can say I can't put right now.
And the a hi, it's very hard for me to quantify that impact at this point I would just said that you know the growing it isn't a majority faster than the better here is that while we asked fear a small portion that needs to more while they move it can help us and quit because when you when you buy the new appliances, then many times.
When they finished the refresh it can create an opportunity to sell just to buy new pro that brought that wouldn't be finished lot read their software system. So I'm less concerned about the end of life Oh, the software I think its initial completely and because we can always if they need to be more time, we can always provide more time, there's not a problem, it's completely in our hands and but it's more.
I think an opportunity that Wendy the more transition happening there more accountability for us to help them refresh their installed base and increased their products enforcing.
Okay. Thanks very much.
The next questions from the line of Ken Talanian with Evercore ISI. Please proceed with your question I.
Hi, guys. Thanks for taking the question you mentioned earlier it takes a long time for larger customers to get accustomed to new models and I was wondering if you could give us a sense for whether you did any pricing studies I had the new appliance pricing model.
Any anecdotes you might have from customers on that.
[noise] [noise] [noise] repricing all day mean, what do I was referring to a solid state first itself of course, we checked with customers and partners before it simplifies significantly for them. The universe I'll give an example, it before when the precious and appliance at that point of time. We gave them then you could be incorporated so.
So they didn't have much of an option to it shouldn't be Fitch and you have not been deal and you could be on the other than to put Oh, great. When gtx, if they chose to them. They had to make a decision what level of support they want and they have different level of support it can be the stand out the premier on the dilution they can choose onsite support none on track.
Reports and selling so that many many auction at four just buying that applies not only so much simpler more now is basically the true that line it doesn't integrate into subscription. So if that if it's cheaper in a sense or lower price when you come to the base model. That's like you said can hit our product revenues, we understand that.
But the benefit there for the got them again for us it not only has an ability to choice one of three NAS options and GP and you have now been you and you could do you I actually think package, including the support which is 24 seven so there's only three options and making sure that and then in the second year, just three new wave and continue so.
Customers love it because it gives them much more flexibility.
They choose not to have and you could be in just one end and you have w. They can if they want and you take that can still go with Enginetics of course, but now they have to support the embedded anything that very simple pricing model because it's a percentage of the based pricing that blind. So it's not that price that he's a fixed right and this fixed price can be similar historically between small apply.
I understand that maybe one level at both with the class now it's the percentage of the base, it's very very easy for them to understand the pricing model and therefore, the she'd like it.
Understood and I guess, it's part of that have you seen it a greater inclination to move to that the higher pricing of those three.
[noise] I said I think it's too early to say, because what I've seen with especially on the hiring model.
It takes customers there is little bit longer time to simply she's bimodal. So I haven't seen enough cases to see a.
Oh, the do not always that funding from the one that brought the new appliances, we see some didn't move down some good moved out but remember that percentage now is compensating for that so we took into account in the pricing we know that on the product it would be lower but over time, we should see more into subscription.
Great. Thank you very much.
The next questions from the line of Walter Pritchard with Citi. Please proceed with your question.
Hi, Thank you tell just to follow up on that question. You just had there I guess in the past you've had you've had the shifts where more of the business. It's gone from product to annuity anyway to quantify in terms of how much that shift maybe under a base scenario when and how that might compare to show so you've seen in the past.
So first remember that when they buy the new appliance they have to choose one of the packages. So all of them when they buy an appliance then we'll have a subscription portion at of course. It supports portion. So the knowing that can go as NGL w., but they can go up to end you dx, including their premium sort of concluded in all these auction a majority of them that wouldn't be an up.
Lifting the subscription the shot down prices in the product line.
Okay, and then just a quick one on idea so I think actually probably the lowest yeah. So you've seen in in a number of quarters, you're dropping into the Fiftys just wondering any anything around how the quarter progressed or a large feel impact that it doesn't influence that number. Thanks.
And now it's probably was slightly less back I know the buckets in general nothing dramatic collection remains the same it's a good time do yourself at this time it came from the levels of the booking so it's not it's basically remains the same in general.
If you look at it by month, because we calculated by month, it's interesting to yourself.
Great. Thank you.
Sure.
Our next question is from the line of Sterling Auty with JP Morgan. Please proceed with your question.
Yeah. Thanks, Hi, guys still wanted to come back to the cloud guard connect a commentary you talked about solution being more secure in those large enterprise I think both security and performance or the the key issues can you can you comment to that kind of the architecture that you're using in that product and how it compares to the other solutions that are on the market.
Little bit more specifically to understand that both the higher security that's wells, what kind of performance expectations you have out of it.
Sure first I think the engines that we have and a couple abilities that we have are much much higher volaris freight extraction threat emulation SSL inspection, hey, we have more and more wed be inspection capabilities more than any other vendor in the marketplace, Oh, but what's the worst security level in a much more.
At higher level, the fact by the way, but when you talking about processing fire them things that I've described.
I think where did you only vendor that actually offer all these things into more the present more activities that you don't get whats called patients zero is going to be cool and not first forgets infected inventing always later you need to deal with the consequences because it was detected research so for the A.M. Ford.
The the way, we do all or a level of security, which we provide for in terms of the architecture. I think we are providing each customer we've been more private environment.
It's just it's still a cloud environment.
But every week, but every customer get an instance over data is more safe is more secure smoke shared we've all heard and be the into specific policy, but these customer ahead is applied to where data. So it's much less I mean for when the like your consumer service that you get the.
No the secure parts to were highly secured by wave.
Your level with your privacy and your level of management on your policy much more.
In what our customers like C N based by the way why the remain.
The number one targets that we have is for small branch offices.
But would like to enjoy these kinds of capability.
Got it and then Paul one follow up for you given the good growth in the subscription side can you just qualitatively remind us at this point what are the biggest contributors to you know to the growth in that line. So in other words, which which bundles, which products are driving the growth.
So it's going to assist from all the subscription, but specifically the main girls coming from the cloud Infinity and and Angeliki, Inc. So then the that sunglass they were they protection.
So that's the main one remember by the way that Q4 or have they usually it as an effect also from they you know paying the compliance with some of them coming Q4 and that can change sometimes the girls to slow to fast it depends what happened so it's very hard to predict.
Thank you.
Our next question is from the line of Shelby say free with FBN Securities. Please proceed with your questions.
Yeah. Thank you I'm trying to gauge the comparison in buildings. So in Q4 or be in Q4 18, you were deferred actually accelerated or from Q3 of 18, but you didn't call out large deals in Q4 last year, which suggests the billings comparisons easier so I'm trying to.
Understand.
You think that the comparison with billings on a year to year basis, it's easier or harder in Q4.
Hey, I'm not sure I follow deal and we got into Q4 am.
I was asked before if I remember a very large deal I admit that didn't in from the top of my head that they don't remember very very large deal, but Q4 is a huge quota for supporting subscription and day and so it's very hard to predict it in general I don't think we based on that number that it's an easy compare [laughter] because it was if I recall it was quite a large.
I'm doing that and Q4 of yours.
Well go up you quickly there were a large deals in Q2 in Q3 last year were there potentially large deals in Q4 last year.
So I said I don't recall I've done everything in front of me. So I don't want to to like on the top of my mind, but I remember it was very high growth if I remember Q4 growth year over year with about 15%. So that was a huge number. So I went to find it is a tough Colombia.
Okay. That's it thank you.
[noise] Nick their next question is from the line of Dan Ellis with Wedbush Securities. Please proceed with your question.
Yes, [laughter] things I'm deal going into next year I'm out of snarky, you're not giving guidance, but just in terms of overall spending or insecurity. I mean is your sense in or out of your customer conversations that spending, especially in the move to the cloud was actually increasing flat a key create I'm just interested.
So much from your perspective things on overall security.
I think overall security copies or all the customers at the high level are willing to invest in security also all the customers have their budget Thunder control. So I don't think that anyone has you Jay additions to veered budgets with already but vacancy there. So we're looking somehow to balance between the new investment we are going to invest a lot in Turkey.
Allowed space I think he's he's going to be or something if he's going to be received by the way your big place where customers are investing in customer there would be very budget. So we need to be there we need to make it secure by the way. It's I think that the importance of cloud security is also very very high we see in almost all the cases of data leakage in recent years results.
From weaknesses in the cloud and I mean, I'm seeing it every day when you make a small recycle mcleod, it's being exploited within minutes I have few horror cases like that for me the last quarter that I've seen how really a small mistake, but inside the company wouldn't even be northeastern <unk>.
Create any damage in the cloud creates a denman weve image within minutes.
And so I think the cloud investment is going to be important.
Overall, I think our challenge is not the overall spending environment how are we.
It's a how we get the customers to adopt the checkpoint architecture in its entirety, that's the high level solution and on the technical level, winning in madness, many product segments. This weekend, including the core gateways that we had but it's still a big opportunity, but still there and then we can occur.
Capture an even bigger marketshare there.
Great and just.
Tangentially.
In terms of like so in terms of private security deals are you seeing more more assets.
Out there that slipped from an M&A perspective in terms of valuations, maybe more sort of digestible, where the wider private companies in consolidation I'm just things is there any change in the M&A landscape, especially on smaller private companies things.
Because the fragmentation of the market I mean, there's many opportunities obviously, it's some parts of the mark of markets valuation or getting out of control within the same time. We also see a lot of companies, we've really really cool technology with can feet our portfolio in but maybe it would feet. So I think every single one answer to what we do see.
Some opportunities and I think are hopefully we will be able to do more with it.
Thank you.
Thank you we've reached the end of a question answer session have time for one final question, what should be coming from the line of Phil Winslow with Wells Fargo.
Hey, Thanks, guys take my question I guess, just a question I'd be curious just what are you thinking and the pricing environment environment out there a it particularly if you could maybe talk through sort of the enterprise versus the telco space, which I know it's been a growing focused for you guys.
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I think it remains very competitive I haven't seen big changes some of it.
But then I mean there.
And they don't tell if you have anything to add them, but no thing generally not only thing I don't think something specific that that could you know they always very competitive, especially in pricing and we're creating a focus on the telco as you know because we believe there's a nice opportunity for us there, but I would say nothing dramatic this quarter versus the previous quarters.
Great. Thanks, guys.
Thank you.
Turning back to management for closing remarks.
Thank you guys for joining us this quarter, we look forward to see out on the road at conferences in such you guys have any questions. Please reach out to us after the call them, we'll do our best address any of those questions. Thank you and look forward to seen you got to take care Bye bye.
This concludes today's conference may disconnect. Your lines at this time. Thank you for your participation.