Q4 2019 Earnings Call

Let me remind you that our get financial.

Also include stock-based compensation charges and motivation of acquired intangible assets and acquisition-related expenses as well as the related tax effects. Keep in mind that as applicable knowledge information is presented excluding these items. Now, let's take a look at the financial highlights for the quarter revenues reached $544 2 million above the midpoint of our guidance office product and security subscription Revenue with 322 million dollars our security subscription revenues continue to be healthy which represent growth year-over-year reaching hundred and sixty-five million dollars. I was told to update and maintenance revenues increased to two hundred twenty two million dollars representing 2% growth year-over-year products are transitioning partly to a solution which are included in the subscription line. The reduction in product line is naturally driven driving lower support levels the growth in our subscription revenues dead.

Is driven mainly by our class?

God business and infinity deals with generated double-digit and triple digit Revenue growth respectively.

Deferred revenues as of December 31st reached 1387000000 dollars a gross a $49 million year-over-year.

Revenue distribution by geography for the quarter was as follows 44% of revenues came from the Americas 45% of revenues came from Europe Middle East and Africa region, the remaining 11% came from asia-pacific since the beginning of 2019 Middle East and Africa region are part of Europe Middle East and Africa, which before it was off of asia-pacific Middle East and Africa region the revenue distribution by geography for Q4 last year after we classification would have been 45% of revenues came from America off 44% of revenues came from Europe Middle East and Africa region and the remaining 11% came from asia-pacific.

No.

Operating margin for the quota where 51% during the quarter the dollar weakened against some currencies. Mainly the Israeli shekel creating ahead win, a $4,000 or $0.03 year-over-year our financial income for the quarter was $20 compared to twenty 1 million dollar less corner and 17 million last year off during the year. We still changing Trend with a decrease in our portfolio as a result of the lower interest rate in the US as a result of this decrease and the continued buyback program. Our financial income for next year is expected to be around $19 in the beginning of the year moving down to 70 million a quarter by the end of the year.

Effective non-gaap tax rates for this quarter was 0 as expected this quarter similar to last year. I will tax expenses included tax benefit from lapse of statute of limitation of certain Provisions government income was 272 million dollars or $1.84 per diluted share and increase of 21% from fourth quarter of 2018.

No.

No income for the quarter was $299 or $2.02 per diluted share and increase of 21% from the fourth quarter of 2018 if he was $0.03 above the middle of our guidance.

Our cash balances was 3991000000 as of year-end operating cash flow continue to be strong with $246 a month compared to 249 million dollars in the fourth quarter of 2018 collection from customers are strong our cash payment increase in line with our continued investment in sales and marketing during the quarter require Forte go and simplifies both have minimal effect on our profits for the quarter.

During the quarter, we utilize the maximum quarterly buyback authorized and purchase 2.9 Million shares for 325 million dollars. That's an average price of $113 per month.

Now, let's take a look into the full 2019 revenues for the year 1995000000 dollars an increase of four percent from last year during the years and continue to be the main growth driver. The subscription revenues include majority of our new products and services including clouds Infiniti solution and Morgan. Well, the Infiniti France we have seen an increase of tens to hundreds of percentage in the annual run rate of business with customers that adopted the full Infinity threat protection Solutions. This is a great news the product portion reduced since the location to subscription is quite large.

During the year, we have increased Cloud Market penetration with over $2,500 or $2,500 customers.

During 2019 and the beginning of 2020. We introduced the new Appliance family. It is hard to predict the mix between the old and the new products and between the different types of life sciences that the customers will end up choosing as you know, our goal is to provide higher throughput across the line for the benefit of our customers understanding that there is some risk of some customers who are lower-priced appliances with higher true food has is quite hard to predict the effect of our new appliances on the average sales price in 2020. We also plan to bundle more service this part of our appliances next year which will continue the transaction the transition that we are experiencing between products to subscription non-gaap operating off for the year have strong.

We're strong with.

15% as we anticipated in the beginning of the year, we continue to invest in our Workforce and marketing efforts as discussed during the year. The dollar weakened against some currencies mainly these off and created the headwind for the full year of five million dollars or force them. This headwind is expanding to continue and to be ten million dollars or six them in 2020 based on the current exchange rates the acquisition we met during the year. I expect it to have an effect of 3/4 cents or non-gaap EPS wage is seven eight cents on Gabby.

As a result of the continued investment currency effect and requisition. We expect the annual margin next year to be around 48% with lower pointing and with the highest the queue for next year effective non-gaap tax rates for the year was 14% for 2020. We expect the tax rates to be for the year around 12. Going down 2% as a result of the change in regulation structure and tax studies quarterly taxes are expected to be around 17% wage. You want you to and Q3 and around zero in Q4 as the laps of statue of limitation expected to occur in the fourth quarter as we seen in the last two years.

Got nothing.

For the year was $826 or $5.43 per diluted share Gap any pressure grew by 5%

non-gaap. Net income for the year was $933 million dollars or six dollars and fifteen cents per diluted share reflecting an increase of 7% off for the cash flow from operation was one one 1102000000 dollars compared to 1130000000 Dollars quite similar during the year the company repurchased approximately 11.2 million shares at a total cost of approximately 1278000000 dollars as an average price of $114 a game.

We believe that our Market leadership long-term growth prospects makes it as an effective time to further utilize our cash to increase shareholder value and such. We have announced today and increase of $2,000 to our buyback program with the quarterly repurchase of up to 325 million dollars a quarter consistent with our previous plants the total amount of available facts of your rent from the old program was 382 million dollars based on their both plan. We expect our average diluted number of shares for 20 20 to be on a hundred and forty four million dollars starting at $147 and moving down 241 in Q4 of 2020.

Now let's turn the call over.

For his government's thank you though. And hello to everyone joining us today. Spoke about fourth quarter business results were in line with our projections or Cloud guard family of products, am bility and advanced threat prevention Solutions continue to demonstrate solid growth throughout the year. These are all subscription-based solution and their continued success shifts or business into more of an annuity money. Overall. We had a strong finish for the quarter and tell you the nice number of wins with our new technologies replacing a lot of emphasis on driving the future of cyber-security with the launch of orange juice the next architecture. But before we dive into the future of cybersecurity a little summary of the Technologies, we launched in 2019. We starting revamping our clients models with the 6,000 and 26,000 if serious of appliances for the high end and data center, but unlike most industry we made the real breakthrough network security architecture wage.

Launch of the master orchestrator.

Maestro delivers cloud like elasticity and reliability to Data Centers normal Gateway architectures work on the premise that 1 plus the 10 + 10 equals 10, for example, traditionally you buy two ten gigabit appliances to work in a high availability mode. So if one fails the other takes over and if you run out of bandwidth again, 10 gigabytes, you need to upgrade the whole engine oil changes with architecture you connect to free or up to fifty two security appliances if they will work in parallel delivering a multiple of the performer providing nplus1. Redundancy. Not only that it is completely elastic architecture. You can add more and more capacity and demanding created. We are starting to see good adoption of them solution with Enterprises of all sizes.

Voters are complemented our network security architecture with the 1500 security Appliance Series 3 Series brings enterprise-grade capabilities to the entry level of the marketplace. It is favorable manage security providers and telcos wants to provide the highest level of security too many small businesses in an effective manner, but beyond the network security involvement in 2019, we made them in the cloud space. We've extended the cloud large family with cloud-delivered network security Cloud going to connect and with the integration into SD one sixth sense.

we've made

Resolution with the acquisition of online and are now delivering Cloud gardenline multi Cloud Security Management and towards the end of the year. We completed another acquisition in the cloud space for several years. I think well just called workload to the cloud Guard Family covering Amazon Lambda functions and traditional service workload in the future given everything we've done in on a cloud space. We believe it's we have a very good foundation for cloud security with the cloud bird family Cloud Guardians. Cloud guards us Cloud guard or Nine Cloud guard connect and cloud hard worker.

Overall, so we're Cloud business now reaches over 2,500 customers up significantly from last year.

And I've heard position we completed in December was in the field of iot security. This one is quite revolutionary technology most iot security companies provide Discovery and mapping of iot devices off a sniping devices on its own doesn't Elevate the security lessen. The real challenge in iot devices is even if you know, which devices you have you don't know their security posture. These are closed places. They don't let you manage your application or operating system environment, usually all the invariable operating system and therefore create a new security vulnerability our new Choi see security technology will change that we can analyze the firmware of each iot device and provide the report on the level of security and vulnerabilities in the design, but we're just we're the storage box. We can automatically create the modified binary that fixes the security vulnerabilities and hardens the iot device firmware. So when an organization deployed iot devices

I can check for security level.

Xender too hard and very devices security posture using our Technologies. This is what we refer to as National Security architecture, which leads me to the future of cyber-security where we're going to focus in 2020. But before I dive into the future of cyber security and the Infiniti next architecture, let's take a quick look at the industry.

Enterprises of any size whatever it's four hundred or four hundred thousand employees Allstate similar challenges. We have a host of platforms endpoints mobile network page number of cloud platforms virtual servers container web services and more many of these don't follow the traditional computer models and present the real security challenge wage the Sox are becoming more sophisticated, but now the fifth generation of cyberattacks moving into the 6th generation, these attacks are polymorphic making this very hard to detect multek and the talking start with the credentials fixed for my mobile device and use that to finish rate the cloud and the network until it starts downloading and activating it malicious workloads. So typical surprised can find ourselves with 30 to 40 Computing platform or as we call assets and that is what security technologies that are needed to protect them.

No Enterprise cancel it all together many flights over assets will remain in sufficiently Secure many technologies that are needed.

Want to be deployed which is what we see every day with the vast majority of the market customers are agenda free security rather than Gen 5 where we should be the technology that are being represented today don't work together probably and don't deliver the desired level of security for the entire Enterprise.

Checkpoint infinity + infinity next are uniquely positioned to change that reality in the past few weeks. We started launching the Infiniti next the technology that can solve the security challenge. The next provide a unified architecture it consists of the security brain that carries over 60 security Technologies with a range of field known attacks unknown threats 8:02 access hardening and compliance and called an API security. Please brains provide this capability as the cloud service to all the platforms are the types and work off or used to get over 50 platform or asset types in 2020 for each platform for is a unique Nano agent that plugged into that system and connect it to a degree.

this is a long list of

Archetypes from several is function a web service or iot devices. They will all consumed the services from the cloud no need for upgrade updates complicated installation home delivery of security can be embedded in to develop services in an automated Manner and provide the highest level of security posture constantly.

And if you do next is the only architecture that combines over 60 Security Services * 50 platforms to deliver unmatched security.

We lost the Infiniti next technology at our conferences over the past few weeks. They were received by our customers and partners with great enthusiasm received. The highest ratings from customer is based on a revision and relevance to release we're starting to deliver these Solutions now and 2020 will be an important year for the new architecture from an execution standpoint Thursday. We continue to make many changes in our field operation 2019 and will continue in 2020 evolving our business and consumer relationship is an evolutionary dead. We're continuing to Target Cloud buyers sea level and Cecil's that are involved with the larger cyber security landscape. We have recruited many new leaders, especially in the channel areas. We've put new cell structures in places and we continue to support and grow the traditional network security business.

Why leveraging our customer relationship to expand our footprint into new fields of security some areas?

Good progress in particular or Cloud sales are growing nicely as well as or Infiniti Total Protection platform in 2019 annuity sales amounted to almost 75% of Revenue and security subscriptions to pass the sales of traditional product, which is a great achievement over the past decade with built-in Advanced security annuity business that is now about six hundred million dollars in revenues annually in the short-term. We will him to grow both products and subscription lines as the new product sales continue to provide an important platform for Thursday.

Over the next year we will continue to focus on the same key area or Infiniti next platform will take the front stage for Innovation and fast-forward us into the future of security. We need you to move services to the cloud line for Security Management the service model and we will continue to drive innovation in the network security core business with r r a t. Software platform when you plant them appliances, which were launched last week and the master platform which continues to generate significant business and provide living Technologies in the core network security Market.

From a technology perspective. I believe we're again.

Attraction was over cybersecurity leadership from a business perspective. Clearly. We should generate higher growth rate and we are fully committed to achieve that success.

A good transition to over twenty twenty projections, as you know, my regular caveat, it is hard to predict the future especially with all the changes. We are implementing to our technology and business office. So it will remain relatively conservative with my projection. Of course, there are many opportunities for upside and also some risks with projections in particular most of our new initiatives Revolt new cloud in the news business model, which means that what we win a large project most of the revenues will be deferred for the duration of the contract and not flow right into the DNS.

It said revenues for 2020 are expected to be in the range of 2 billion to two point 1 billion dollars. Non-gaap earnings per share is expected to be in the range of $6.25 to $6.65 is expected to be approximately 85% slower for the first quarter. We expect revenues the range of $475 million dollars to 495 million dollar and non-gaap EPS in the range of dollars thirty seven $2.43 a month. Got to expect it to be approximately Twenty One cents less.

Was that I would love to open the call for your questions. Looking forward to your your fault and question.

Thank you. If you would like to ask a question, please press star one on your telephone keypad a confirmation to indicate your line is in the question queue. You may press star to if you would like to reserve your question from the cute and for participants using speaker equipment and maybe necessary to pick up your handset before pressing the start. He's our first question is from Brad zelnick wage. It says please proceed.

Excellent. Thank you so much. You'll I wanted to drill in a little bit on the go to market changes and I appreciate all the color in your prepared remarks last week. We know the new star is global partner program you announced building on the engage program that you also I think announced last May and it seems though that when we talked to Partners, it's tough getting them to lead with checkpoint in net New Opportunities Landing new logos. Can you talk specifically about the progress that you made last year how the new program incentivizes new business and any metrics or leading indicators that you feel that you've maybe you've gotten it right now as we head into 2020.

I think first.

It's important to understand last year. We grew the number of new customers and we grew the number of Partners and we had some nice successes. I think the new programs that we have are all tailored to have some effects on that day to create the programmatic effect. But to be honest with you the main job is not the program the not the formalities The Joint work the towers people doing and will do in the market place. So that end again we put some new leadership in the channel areas both on the global basis and especially in the US and I think one of the important elements is to be kind of reiterate vet Mantra to our people go work with our partners. If we if we create more successes together. We will they were dated by the partners. Now keep in mind. We're the only vendor the other hundred percent of business with partners and through Partners, but I think what's changing the last few years the last again, it's not the last few years.

Change many years ago. He's but we ended up driving more business and just fulfilling it through the channel, I think.

What we need to do is drive the business all the way with the partners. I'm encouraged with some of the things I've seen. But again, we have a long way until we reestablish veterans. By the way. It says it goes both Partners working with us is we're working with them and I think in Texas, we got good feedback from them. We had very very successful see taxes. We had two of them one in three weeks ago One in New Orleans in the US last week the biggest one by the way by far is going to be a European while it's going to start tomorrow in Vienna, Georgia, and I get it from what I've seen in the US in particular we've seen some good Traction in getting Partners more and more involved.

Thank you Google if I can just follow up for for one from tall, I think most of us appreciate the transitions that checkpoint and the overall industry is going through in the impact. It has on a business model is more Revenue shifts to the subscription. But if I look at it current deferred revenue for the full year last year you added $32 million dollars compared to the prior-year at home and the year before that is 64 million and this is with strength and things like Cloud guard and infinity and and has Gill talks about strengthen your annuity business. So, you know with this transition and we would you know, we would expect it to have an impact on product Revenue. Why aren't we seeing it more build in deferred and and any kind of acceleration on the on the subscription lines? Thanks. Yeah, that's the effect should be reflected. The Deferred revenues. The only thing I will say is that two things one Infinity deals majority of the dollars are not coming through different because it's annually invoiced so you see a phenomenal job.

annual invoice business

And second. I remind you that we talked about it throughout the year this last year. We had a few recorded abnormal used transactions wasn't used to an increase. As well, which it was very hard to match last year. We had the fuel very very large deals, which were Parts partially part of the Deferred revenues and therefore you don't see this part of the grocery.

Okay. Thank you.

Our next question is from Michael tourettes with Raymond James. Please proceed. Hey guys, I'm good morning. Good afternoon. So I think I'll start with with with the two more points of margin declined this year. Can you just make sure we've parsed that correctly to understand what's coming from Acquisitions of the shackle and what's coming from incremental Investments wage where those Investments are and the the following questions that another two points down this year with margins. What's the prospects? Are we are we bottoming at this point or how do you think about margins log?

Yeah, so so I mentioned three things.

Details behind it. But the three main thing was one we talked about the headwinds from the dollar the main job against the Chicago happened in Q4. It's already now 3.4 we started last year for recall a 3.8 but most of the jokes happened in the last quarter or two. So the full effect you see in next year, which is I told you it's estimated based on today's rated around $10,000. Okay, so that's probably explains about half percent slightly more and second. We had that position at all the incense. It's about $0.78. Annually. You can calculate how much is it in dollars? I think it comes to about also ten million dollars or so the 303 acquisition this year. If you recall one in the beginning of the year and two in Q4, so it's not a big deal, but it is affecting all of them have no Revenue just expenses, but it's good. We bought an amazing Technologies. It's just part of the expenses for next year and third dimension. Yep.

remember that when you recruit people and you

Salary increases even if you don't recruit people if your growth in revenues or three four percent, then naturally the growth in your head count plus the growth in their increases in salary brings higher growth is the third big explination for the two-point drop from 50% to 48% And that's the average remember that she wants that's much lower because obviously fixes are in q1, so I should start maybe 2% lower and then the year end with 2% higher. So the average comes with the 48%

and then just longer-term question. As I said, it's been a couple of years of continuing declining margins. How should we think about your strategy relative to Mars is over the next couple of years the first time I've been saying that we're public now for like almost twenty-four years. I've been very very consistent about vet from the day. We went public in ninety-six or focus is not about the margin over focus is on building a healthy growing business and veterans are doing by the way over that period of time we've actually expanded our margin lot longer than our margin over the the long period of time in our choices are very very high around the again. Whether it's Forty-Eight or fifty 2% of operating. Margin, it's a very high the main strategy is what we do and how we do it dead effectively. There are many opportunities in the marketplace. We do want to consider new markets. We do want to take good care of our people which is also important. We do want to provide good day incentives for the month.

For our partners the fact that we're able to do.

All of that and still maintain the tight Maja margin I think is speaks for a speaks for itself. And I think once we see some of it flowing some of them coming and flowing into our top-line, it will flow down to the bottom line as well.

Our next question is from Fatima belani with you b s please proceed. Good morning. Good afternoon. Thank you for taking the questions. I had one for Gilliland 1:40 a.m. Till you were super helpful in outlining the initiatives for calendar 20 in the focus areas for calendar twenty but I did know that the emphasis is still on Thursday evening. If you will your network security or your product business, so can you help us think about what sort of sales compensation or sales incentive structures you're going to bring into place with incentivizes adoption of some of your newer Solutions like the cloud guard family as well as the traditional network security and the Gateway portfolio.

First of the product and the network security portfolios still the majority of the of the revenues and the activities so clearly the sales people are focused to bring those numbers. Actually. We need to incentivize them to invest in the new areas where I where we believe it's very very important for strategically and the mind sharing for building the future Revenue frames and yet the account only for a small portion today off the total revenues even and I think that's where it comes to play. So I think we do build the incentive programs and we have incentive programs to talk to help in that as I mentioned earlier for an earlier question. The main job is not about the the commission plans or the incentive program. The main one is management every day that every month sales person and every civil engineer and every manager in the field should know how to balance their act between supporting and growing the network security business. And yep.

placing new business on the total security platform

We're finishing a decade now and I didn't talk much about that. But if you remember where we started the decade we started a decade with Gateway platforms where I wouldn't say basic they were very rich for that era for a decade ago, but we started with the software blade platform. And what we aim to do is consolidate many Technologies input the Gateway and makes the gate for you much bigger security platform and support that with a new business model. That was the software Blade model and ten years later. You can suck actually achieved that. I mean the in the network security business the gateways. Are you decide the Gateway is a big platform our software blade business or west we call it now the subscription business all the new products business. So that's a huge achievement from that point. We built them business which more than six hundred million dollars in revenues big part of it is the birth

Sure, the security services on top of it and we really created the consolidation on the Gateway. I'm bringing that because when we look into

The next decade I think what we're trying to build now with infinity is the next platform that will go beyond the Gateway and we'll bring something with these same principles to the entire network security landscape having the cloud is the first priority but also the iot and other spaces in that in that space. I really like em, but if we look forward the ten years from now, we will see checkpoint building such a platform Beyond just the network security field and extending it to the to the bigger bigger cyber security landscape providing the same kind of consolidation and unification.

Our next question is from Daniel is with wedbush Securities. Please proceed yeah, thanks. So is your thing about the cloud transition when you look at your car or portfolio versus what you say potential Acquisitions, just how you thinking about it by British build in terms of just cloud and going after the 2020 opportunities.

I think first we have today a very very rich Cloud platform including all the key elements the the cloud virtual servers the cloud must the multi Cloud management private Cloud public old clothes workload Cloud saw security is a service or software security for a software-as-a-service actually multiple births Cloud provided security like the cloud guard connect and the one solution that included with that. So I think we're we've built a very strong platform. I think the core of the platform is built by US based on our Fred cloud and now in Infinity next which is a brand new technology platform for delivering security from what we call a cloud Brave inside that we have a lot of Technologies and a lot of places when we can augment it with acquisition and I think just this year we made three. Yep.

Visions or just a 9 mm.

19th we completed three equations in the cloud space for service functions for a for a bulb web services on the cloud which is very important the beginning of the year and I don't see which you well it's not Cloud the the security is delivered from the cloud and using vet Cloud to deliver security. So and that's on top of what we've done in 2018 for the cloud management with some nine. So I think we will continue to look for more opportunities. We will I think as I mentioned before we are we want to secure now.

at least fifty type of assets many of them more than 20

types of these assets are were closed on the cloud and the none of agents that we will put into them is sometimes made by us. Sometimes it's a combination of something made by check point and new technologies that are being Acquired and we will continue to look in in all those places.

Our next question is from Brent throat with Jeffries. Please proceed.

Thanks tell, you know Billings that missed consensus numbers. I'm just curious for this year how we should be thinking about Billings. Is it something you pay attention to or how we should think about is is that remains a key metric that many investors are focused on

We don't do.

The reason is that it can fluctuate easily as you've seen this year very clearly or between some quarters because billing have to affect if you invoice multi-year you will have an upside-down billing and if you had a great deal but your invoice monthly or annually, then you won't even see so we're very careful on that what we look at it as a run rate now, right? Yep, you're right that reflects the runways and the right way was a single-digit and we aspire to increase it significantly, but the guidance is is aiming for a single digits as well at this point because of the transition between Samsung products and the cloud product into subscription and the infinity which is annual versus movies and so on so the guidance remains in this level and like you say, it can have upside or downside, but that's when we get this point of time.

Our next question is from Craig Moskowitz.

Let's do have please proceed.

Thank you very much. How would you characterize?

Can you repeat that because you were selling very weak the sound. Hi Gill. This is any better.

Perfect. Sorry about that. So just the high-level question. I was wondering how you would characterize demands for physical firewall as well as virtual today versus six to twelve months ago.

It's hard for me to say some of the shifting attention in every organization doesn't go to new platforms. By the way. I was surprised last week when I surveyed Partners to some of their priority is for a 2020. I was expecting to hear all I have Cloud on their agenda by I was expecting three or more cloud and I heard more about i o e and the one connectivity so there are multiple levels of interests. Not just Cloud. I think the demand for a Gateway net and physical network security key remains pretty stable and I'm not sure if it means the small increases small decreases but stable

Our next question is from Carl keirstead with Deutsche Bank. Please proceed thanks Gil. And I just like to press a little bit on the q1 and twenty twenty-five you go growth guidance of of 3% deal. You described it as conservative. But throughout this call you and tell have mentioned on a few occasions this mix shift wage some product to subscription, which should put a little bit of pressure on growth tell you mentioned not assuming some of the chunky deals that you closed in the middle of last year. So given comments. I would have expected your Revenue guidance to be a little bit lower. So 3% is about what it's been frankly in the last several quarters. So there must be some positive offset to these sources of revenue growth pressure. Maybe you could outline what one or two of those might be. Thank you.

First name is too much higher growth. Right? I think the combination is for a is again, some of what's happening in the marketplace time is the shift in the business and summed investment areas that are still fairly small. I think at the end of the day we take all the data that we have we balance it and and we got to the numbers that we got off my goal in the sales goal is to try and create business again, no matter how you measure it. If you measure it on the revenue side or you measure it on average amounts that will generate at least with the amount of growth again, like I would do the my part my partying in the sense of the balancing. So first rewrite, I'm seeing like the last few quarters I speak to 3% You're right when the products are negative. The support is under pressure. Therefore it's going down as well. But we see the the the atmosphere under Pigs and the sales people what they feel about next Thursday.

and the apartment

Is that we met in the city. So I think when you look at the full year then we expect to see some changes already in the second half of the year. I don't see tomorrow. You're right. It will take some time. But this is what you can be if the product transition to the cloud will be faster than your right. There will be much more pressure that is part of the guidance. But if we will see products picking up because of the Executioner of the partners in the field in the network area, then you might see an upside and that's why we have arranged.

Our next question is from Brian at 6 with Goldman Sachs. Please proceed hi, good morning. And thank you for taking a question. I was wondering if I could ask you a little bit more about you know, last Thursday. I believe you noted that you know sales Cycles are lengthening particularly as you transition from more product to annuity type Revenue. How are you? Seeing the backlog evolving and you know, maybe a Part B to that question, you know sales and marketing continues to accelerate may be faster than Revenue growth. Is there a point where you see maybe an inflection point in the backlog, you might get more sales and marketing leverage. And and how are you measuring incremental dollars of sales and marketing spend in that light?

I think

You can say his piece by the way. I look at it is it's not here yet in this level. It's personally would like to see the pipeline is growing and execution is improving and and to see that booking in purchasing and then translating into the p&l once you get there. And you see the pipeline is drawing you will see the the measurement Purcell person I proving and then you can talk about leveraging but mm is that clear the opportunities are out there. The cloud opportunities is opening. We see our Cloud numbers are increasing significantly. We see our infinity a number of deals are increasing significantly. We see when we close an Infiniti dealer the annual value is increasing between tens of percentage 200 percentage. So the opportunities are they what we need to start seeing it is building building into Michigan's amount in order to to balance the reduction that you see in the product and that's what we are looking for on the next year specifically in America.

datuk very helpful, and maybe I could just do a quick follow-up on em, an activity is your pipeline building or you looking at more activity out there or

For things just evaluation expectations just too inflated at this point.

And we always look as many many.

conversion rate

three opportunities into Acquisitions so that I think it said the most repurchased action in one year or if you look at twelve months before December to December, we actually at 4 because last year it was in December if I remember the deal, so we see Mark with the engine and then it depends on what we see if we see good opportunity. We will see the definitely

Our next question is from Cheryl with Oppenheimer. Please proceed thank you. Hi, good afternoon guys, I know that in Prior quarter probably throughout 2019 the main focus from a hiring perspective was senior Personnel mostly but I wonder what's the status of this sales leadership is in Europe and other any changes or or plant additions?

I don't want to get too much from a competitive standpoint to all the searches and all the position we're looking but we are looking for good people all over the world. By the way, we're looking for good people also at 6 every level is important and we do have several. And by the way, when you look at the sales in the world, I mean we look at the total results and what the total percentage we very low we have regions within the US demonstrated very nice success in very high growth rate. We have regions within or countries within Europe and Asia and Latin America that demonstrated there were very nice growth rates and we have the opposite example. So, I mean, it's not uniform the percentage were looking for is far from representing the Run rate of of every every single geography between have so yes, we have several countries and several geographies which are looking to strengthen our leadership in particular in specific areas dead.

And we're looking for good.

What's Personnel good, especially in the field and in sales all over the world and always?

Our next question is from Walter Pritchard with City. Please proceed.

Hi questioning is split for he'll and he'll here on the new appliances. You know, you've gone through these releases a number of times and even gone through the process of deferring more of the revenue and just off the subscription. So I'm wondering if you look at the new Appliance releases and how customers May adopt them. There's there's always this potential trade off of buying cheaper boxes that have better throughput off. How would you compare this release two priors? And then how could you help us understand just from a mechanical perspective what the increase deferral rates are on the new appliances with with the monthly subscription attached. So the general direction I'm looking for in a we had to get don't want to pre-launch anything is to give more security value with each appliance that we have. I think we need a stent for the best security. We've tried last week's the models when we solve the basic boxes and multiple options for different level of security tell you the truth and I don't think that's necessary.

Really the right approach. Our approach should be to send for the highest level of security to always protect against Gen 5 security.

To deliver to our customers. What we believe is right, which is the highest level of security that we can choose to activate it to renew it and so on but my Approach would be to give more and more Security Services inside the the Gateway that we provide it has again accounting implications from calculating the value of the of the appliance and the subscription service. I think it's a little bit too early to say what they are because there's a lot of moving Parts in that like what will be the ongoing cost of the subscription after that and so on but my aim is to provide the highest level of subscription the highest level of security and then to provide very competitive subscription rates for future years.

Our next question is from Sterling Audi with JPMorgan. Please proceed. Yeah, thanks. Hi guys. Just wondering with the investment. I made can you give us a sense of what the total sales and marketing headcount finished 2019 versus where it finished 2018.

In general is increasing a few percentage average versus Everest. She was seven or eight per seven or eight percent exactly the same the actual number we didn't provide were provided as part of the 20th.

We had wasn't into your rent, but it was throughout the years. Yeah, because last year we've actually in the end of Q4. We accelerated some hiring. Yeah.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to him for closing remarks.

Thank you guys all for joining us today. We got a plane to jump for one of us. So we're going to have to cut it. Just slightly early today, but we look forward to seeing you throughout the quarter and have a great day. Take care.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.