Q4 2022 Check Point Software Technologies Ltd Earnings Call
Exact of 1933 and section 21 E of the Securities and Exchange Act of $19 34 include but are not limited to statements related to check point's expectations regarding our products and solutions expectations regarding customer adoption of our products and solutions expectations related to cyber security and other threats.
Expectations regarding our 2023 initiatives, our ability to continue to develop platform capabilities and solutions customer acceptance and purchase of our existing solutions and new solutions the market for ITE security continuing to develop competition from other products and services our share repurchase plans in general market.
Economic and business conditions tried to cover everything. These forward looking statements are subject to other risks and uncertainties.
Including those more fully described in our filings with the Securities and Exchange Commission, including our annual report on form 20-F filed with the SEC. The forward looking statements. In this presentation are based on the information available to checkpoint as of the date hereof and checkpoint disclaims any obligation to update any forward.
Looking statements, except as required by law in our press release.
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 and with that I'd like to hand, the call over to Roy Golan, Our acting CFO for a review of our financial results.
Right.
Yeah.
Hum.
And to review our fourth quarter.
<unk>.
So we had a strong quarter with revenues reached 638 million rollout, which is by me on above the midpoint of our projection our non-GAAP EPS was $2 45 in Cleveland <unk> above the top end of our projection.
As we move to the full heel our revenue reached $2.330 billion of 40.
42 million above the midpoint of our initial projections and non-GAAP EPS of $7 <unk> 40 cents 20 cents above the midpoint of our initial projections.
Yeah. So we can see also here they accelerated growth that we had a this quarter also and also for the full year, both on revenues and EPS and before I proceed into the numbers. Let me remind you that our GAAP financial results include stock based compensation charges.
Alteration required intangible asset and acquisition related expenses availability tactics mix keep in mind that as applicable non-GAAP information is presented excluding these items.
So now let's dive into the detailed review of the quarter as I mentioned, our revenues grew this quarter by 7% versus 6% last year, our deferred revenues reached $1.878 billion with more than 10% growth year over year. Our calculated billings reached 869 million rollout, let me remind you that our bills.
<unk> is affected by deal timing duration and payment terms and can fluctuate.
Now we will see that our accelerated revenue growth is mainly driven by our subscription revenues that reached $231 million, representing 30% growth E. Mobility that was mainly driven by our cloud got an armani deal all the both delivered double digit growth also I want to remind you that Q4 2021 was the first full quarter with Avon.
Impact on all prescription revenues.
And ideally effect that has on our accelerated revenue growth was the strong adoption of our infinity strategy, which had a great quarter, you'll continue to flow in accelerated way to the revenues with 100 and political Semgroup E mobility.
If we move in April our revenues by <unk>. So we can see that 49% of our revenues came from EMEA.
39% from Durbin is came from America and Bill remaining revenues came from APAC with weight both of them.
It's important to note that we add growth across all geographies now.
Now if we're looking on the P&L highlights for the Super Bowl. This quarter saw gross profit reached $559 million.
With strong of a strong gross margin of 88% those strong marginal impressive considering we continue to have some additional costs for raw materials and shipping as well as price increases by many vendors, while we still see a still see supply chain challenges. There is some relief and we expect to see modest improvement in 2023, our operating expenses increased by 30.
10%. This quarter. This increase was mainly as a result of the continued investment of our in our workforce, including compensation and increased travel offsetting this increase we also benefited from the stronger us dollar by approximately $10 million this quarter.
No we wouldn't see it we see that our operating income reached $289 million representing.
Representing 45% margin operating margin this quarter, our financial income this quarter reached $15 million as we invest in Io interest rates over time, our non-GAAP tax rate for the quarter was around 1%, mainly due to applicable tax provision because of several tax assistance we have worldwide.
Our non-GAAP net income was $301 million.
Two or $2.45 per diluted shares, which is 3% above the top end of our projection.
9% growth <unk>, our GAAP net income was $270 million or $2.20 per diluted shares.
Now if we're going to move through it for the P&L highlights for the full year. So you can see again that our revenues has a nice growth of 8% to build $2 billion and $330 million. Our gross margin was strong at 88% our operating expenses increased by 15% D C mainly related to the increase in our workforce our Ed.
<unk> increased by 415 employees, 7% increase year over year the effect of the P&L was higher mainly due to the fact that we urge the compensation in Israel in the beginning of 2022 with loyal Euro dollar rate.
And also we had this Iot a prominent prepayment extent expenses as well back to travel.
Our non-GAAP operating margin was strong at 45% compared to 48% last year and for 2020 flee a few factors about 2023, a significant part of our work was includes was towards the end of the year. We started 2023 with Iran. Right. Let me remind you when we discussed last deal plan.
For 2022, we plan to be around 40% to 43%, but as the island took longer than anticipated significant portion of it was done in <unk> through 2022.
During the second half of 2022 will return to higher levels of travel and we expect that our travel entertainment expenses will continue to grow and continue to normalize and iron levels in 2023.
As for the FX effects in 2023 more than 50% of our expenses are in local currency and the strength of the U S. Dollar is expected to provide us a benefit based on these factors that I just mentioned, we expect that our operating margin for 2023 will be around 42%.
Our financial income for 2022 was $44 million, reflecting.
Reflecting the increased yields on the portfolio.
For 2023, we expect incremental financial income between $1 million to $2 million every quarter due to the IAA with former investment deal.
And for the tax rate for 2023.
As for the tax rate for 2023, we expect similar tax slate.
This year compared to 2022, while a for the modeling purposes, we expect the 14% a tax rate for all four quarters.
Now, let's move to our cash flow and our cash position, our cash flow our cash balances marketable securities and short term deposits were $3 5 billion.
As of the end of the year.
We had a strong operating cash flow of $230 million.
This quarter, a payment increase naturally as a result of elevated raw material costs and investments in the work force as discussed.
During the quarter, we continued our buyback program and purchased two 6 million shares for $325 million.
At an average price of $124 per share.
If we are moving to the portfolio, we see that we generated very strong cash flow with 1 billion an $80 million.
For the year, we also a flu if we're taking the case for constellation decreased by 9%, but the net of edge taxes and acquisition related costs. The operating cash flow was in the same level as in 2021.
We repurchased 10 3 million shares for $1 3 billion at an average price of $126.
For 2023, we expect our average diluted number of shares to be approximately one out of the 19 million shares for the year, starting with 121 million shares in Q1, moving down to 150 million shows by Q4, assuming a share repurchases of $325 million a quarter.
In addition, we announced today are also our expansion into our buyback program in an amount of $2 billion under the program. We are authorized to continue repurchase sale up to $325 million each quarter as we did in the last period.
So to summarize our results with strong revenue and EPS for Q4 and for the full year 2022.
Our revenues and non-GAAP EPS above the middle of our projection triple digit go for Infinity revenues and we keep focus on top line growth, while maintaining strong profitability and now I'll turn the call over to Gary.
Thank you Maria.
Hello, everyone I am region.
Sure.
Okay.
On the business and especially what we do moving forward.
Sorry go ahead first on Asia.
We fly.
The full year reporting was important covered many of these things in the previous quarter.
Wasn't very very active year, we started the year with lightspeed and.
A major platform for high performance say.
Security with the end of the year, which tighten horizon, two very important upgrades.
For.
Security.
We created many internal organizational changes with the new rockets organization, new commercial organization, and even rebranding and changing our logo for the first time in my almost 30 years.
And I think financially I think as you've seen from Romania. We've done we've done very very well both for the full year and for Q4 I already mentioned it in the in some of her comments.
This year was a little bit interesting from a financial perspective, we're very proud of the results and the strength of the business that we sold but for the first three quarters, we had a very good business environment, we grew our internal <unk>.
<unk> the way we wanted them in a very higher rate Q4 was a little bit different than we did face some challenges towards year end projects were postponed our.
Customers didn't have the budget flush, but usually expect demand in them.
Q4, despite that and again the numbers that we ever very very good but they just want us to know what it's not business as usual.
And even though we have good numbers and good forecast for next year, I think we need to be a little bit cautious more than more than usual. So let's for summarizing everything we had but let's talk a little bit about the future. So I think one thing we know and one thing thats changing the cyber environment is.
Growing I mean, it's there's more cyber attacks and they become more and more sophisticated.
And we have security professionals are in charge of keeping the business secure and Thats our job just to see the statistics here at typical organization gets almost 1200.
Attacks every single week, that's not per year, that's per week. The 11 50 year in some sectors are much higher in some geographies that are much higher that's very very alarming.
So the question is how to win that battle against the bad guys how to win.
Against the fifth generation and more sophisticated cyber attacks that we see.
So what I wanted actually to start with here, let me do that.
And share some.
Is.
Invite a friend in the and see a real case study of <unk>.
Chief Information Security Officer from a really case and then understand how we can win that battle. So, let's watch vet, but on that fateful day, my confidence was shaken to the call.
It started with a barrage of alerts from our anti virus software.
First I dismissed them as false positives, but as they continue to pour in I began to feel a sense of unease I immediately launched an investigation, but it was too late to malware quickly spread throughout our entire network, causing chaos and disruption.
While my team was looking through the morning alerts our systems and data became inaccessible and our employees were unable to do their jobs why did this happen.
We were using the best products.
Did everything by the book.
It happened because all of those products didn't work together, we could have prevented it had we applied a consolidated security architecture.
Thank you Alex and by the way Alex what you saw here bulk has creeped in Alex we're creation of AI. In 2023 is also the year of AI.
But the story that you've heard.
Israel and even though we had cyber don't have the nice hair with Alex says.
The challenges that we face the same challenges that you see here the real case studies with procured last year.
On the end of February I think it was 28 February that company got some malware actually the malware was first quote by him.
Buy some security software on one of the endpoints.
And nothing happened, but six days later on I think it was March 4th if I recall correctly. The malware indeed entered the company and that message was shown to all employees. After the weekend. The plants were shut down 250000 employees were sent home and master negotiation the company paid $14 million of friends.
Somewhere and the question is how to battle with and how we can win that battle, you'll know this happens everywhere.
And you'll see some more here at La <unk>.
And again, we see unfortunately everyday such attacks dental care, so how to win that battle, what should be done differently and let me draw an analogy to <unk>.
Two our real World would we have a fire alarm on the sixth floor.
Everybody's rushing to stop it we all get an alert where all checking whats going on the doors shut down there. So the center of the building checks, what's going on versus you know a message on the on the messaging system and we are the entire building response to vet attacks. So we can contain it.
And stop it and hopefully even preventive and keeping outside now let's draw the analogy and see what happens in cyberspace.
There is an endpoint here on the right to receive some malware, let's assume that it even catches that malware and stops it and why.
What's happened with the rest of the entities around the different workloads.
The different the networking security the cloud security everybody else.
Don't care nothing happens actually all the other products remain unaware two ret security incident and are not doing much to stop it.
And that's the thing we did change we need to get to an environment. When everything works together and vessels you are trying to build with the infinity architecture and new in 2020 free we call. It the free season, and what <unk> means comprehensive prevention across all attack vectors and you'll see these zones.
Across all the different elements of the system to the cloud the cloud application the endpoints the remote users the network everything has to be secured.
Consolidate customer spend are tremendous amount of energy resources buying managing upgrading renewing.
It doesn't.
Security solution instead of fixed to give our actual instead of unifying it reducing the complexity and mainly managing in a way that actually creates more value and last but not least the one I want to focus on of the <unk> is the collaborative nature of the security when we see something suspicious.
On one hand, or when we are at the chronology with Kim.
Stopping attacks, we apply these technologies to all attack vectors and we do it in real time.
And that's the collaborative element of the cyber security.
How do we do that we are in the middle of our architecture with Fred Cloud and now we are launching the threat cloud AI and I'll explain exactly why do we say AI not just because it's a nice buzzword in 2020 free that central Fred cloud.
Connects to all the amendment.
All the elements of the security systems to the users and the devices with harmony to the cloud elements to the networking elements and feeds the mall and collects information and prevents attack in real time now why do I call. It AI not just because it's a nice buzzword you'll see for example, our latest five.
Engines with Suez Prevention engines, which we introduced into great cloud, we talked about them I think two months ago, and we are getting to market now are in market now.
All of these are based on AI technologies and by now just to give you the sophistication and the power of threat cloud, we have infrared cloud 75 prevention engines.
42 of MRO already based on AI, just in 2022 released 12 AI engines.
So that shows you the strength of threat cloud something that I don't think any other vendor can match collecting and responding.
The information from all attack vectors from the cloud from the users from the network together.
And applying AI to them and generating the best prevention actions, but we can do over time. So that's the heart of the hard the brain of the system here.
So once again the free sales comprehensive prevention of attacks across all the factors from code to cloud consolidation unified management, one way with their security argument that C. So can manage the entire system and last and not least the collaborative element of it.
The best security engines, but they are applied not one victor not the great vector apply just to email not so great and Jim applies just to endpoint, but all the best engine applies.
All attack vectors and are doing their work in real time.
And the architecture of it's based on API with based on integration and that allows even integration within our framework and even to external.
<unk>.
Vendors, so that the pre principals along with principles, we will announce many many new products, we launched product who speak about many many areas I won't stop here to do that it will take too much and I don't think that's necessarily the main focus.
If an investor call, but you'll see from the quantum elements to the left to the centralized management with infinity from the cloud or not from the cloud in the middle all the way to the new you'll remember we had three product pillars three major families.
<unk> cloud guard and harmonious and now we've added the horizon that.
Provides far more threat.
<unk> intelligence in a centralized way with creates this collaborative effort and we don't call. It just xdr or MBR, which is detection, we call. It NPR, our XP or prevention prevention and response.
One interesting product with I think touches to our market potential.
Importance in terms of market size and customer demand.
The SD Wan element, we are introducing now and SD Wan engine or an SD Wan Ot call. It bled into a real different gateway families very comprehensive prevention, making networking both fast.
Optimized in many networking environment, but also with the highest level of security. So just.
An important one important product amongst all the offers.
To show an interesting quote we had last week, our <unk> hundred 60 conference again in alive mode in New York actually was.
Lines of hybrid conference when we did it in six different locations live plus virtual to ask to get into to gain access to many many more customers and partners.
And an analyst, but we invited doing.
Actual security analysis and testing of products, Rob Smith, <unk> CEO of Myer com.
Apprised as Stephen we've not with the data because the data we know but he is very very good slogan with these shares with us on stage.
Checkpoints, what you got is Unreal 99, 7% Zero day prevention is unreal very continued and say Hello, guys I talked when I solve it maybe our tests are too easy but from other vendors your competitors not offer vendors only referred to percent of check their reports.
Actually some of them get all the way to 40%, but guys. This is very very different it's not the same a little bit better. It's the difference between the <unk>.
I think the bad guys, then or preventing the attack altogether and that's actually what their hub continuously says Preventatives first place only check point is doing prevention second place as the victim and that's what we don't want to be so just.
An interesting anecdote from.
Last week.
So I think what we have altogether is a very very robust strategy.
A lot of activity inside the company to bring this message to the market.
And I think a lot of work on new technologies to implement which vision in a better way.
So before I finish and summarize just to provide you with our projections for 2023 in the first quarter.
As I mentioned before and as I mentioned every time predicting the future is always difficult.
The level of uncertainty in the market now is actually higher than usual not that we haven't seen that kind of uncertainty in the markets in the last few years, but even to that level. I think we are three years ago. We've been through a similar situation now I think we're getting into another.
Interesting period of the marketplace I think by the way in the mid and long range. It can play to checkpoint strength because in times like that people look for consolidation in times like that people look for a strong vendors and I think that can very much playing to our strength of providing the best security.
Just to put things in perspective.
The projection for the year shows continued healthy growth continue Delphi investment with revenues between $2.340 billion to $2.510 billion.
non-GAAP EPS is expected to be between $7 70 to $8 30.
GAAP EPS is expected to be approximately $1.22 less.
For the first quarter, we're also expecting decent.
Decent numbers, especially given the economy revenues are expected to be between $545 to $585 million.
non-GAAP EPS is expected to be between $62 78 and.
And GAAP EPS is expected to be approximately 31 senseless.
So thats summarizes I think what we had to share so far.
We are very proud of the strong financial results I think the highest revenue growth in many many years EPS for the fourth quarter exceeded our range.
<unk>.
We will be working very hard to harness these free seas of best security, providing a comprehensive consolidated and collaborative solutions.
And we expect both our investment in the business.
And the growth, but we will see as a result of that to continue in 2020 free so I really want to thank you for joining us today and we'd love to open the call for your questions.
Alright gang.
As always we would appreciate it.
You would just ask one question that way, we can get through everybody and work our way back through you guys again I will call out. The first name followed by the person that will be up next so up first is Adam Tindle from Raymond James followed by Joseph Gallo from Jefferies.
Okay. Thanks, good morning Gail.
I guess I just wanted to start with kind of a financial model here, if I look at 2022.
Margin margins came down by about 400 basis points in billings growth was only about 5% if I look at your guidance for 2023, we've got more margin compression coming and not a significant acceleration in terms of revenue growth.
So just curious to get your take on how patient you're going to be with this investment and the timing to see some growth acceleration on the other side of it. Thank you.
So as I mentioned in 2022 without first I mean, I think we do want to invest our goal is to grow our goal is to do what's right and I think our margins are very reached so my focus is not on the again I've always be pronged been proud and I'm still proud to be a profitable company and don't intend to change of it I actually think that it gives us a lot of strength.
But we had we say.
The flexibility and freedom to do whatever we want and generates very good results and if I looked in 2022 actually what I've seen in the first three quarters, we've actually got into.
Internally again in the measures that IC, but some of them you've seen two very high growth rates, we've created more new business.
Everything works according to plan fourth quarter changed and again I'm not shy in sharing with <unk>.
Wish it was different and again I think it's an industry wide phenomena, we actually kept winning projects kept getting very good feedback from customers just in the last week two weeks I've met with.
The 100 customers and partners and we all shared her enthusiasm we've always technology with our strategy. We're all we're interested in expanding the solution but.
Maturity is about.
We've seen what usually we see the fourth quarter, which is a huge budget flush big projects projects got delayed no budget flush.
And again I think from what I've seen the last few weeks, it's an industry wide phenomenon or if we need to be aware of so so far what I've seen it with the investment does pay off again. Unfortunately, we didn't have the fourth quarter.
To kind of create with strong.
The momentum moving forward.
And I think in the future we will continue to invest the level of investment in 2020 free is not necessarily going to be the same as 2022 I think in 2022, we built a lot of new organizations, we've been very very.
Strong in recruiting a lot of frontline salespeople, which by the way I think for really mentioned it in his comments some of them. Some of the effect will only see in the spending in 2020 free because December for example, we hired a lot of people and they will show up in our Q1.
Run rate.
Okay.
Alright that is Joseph Gallo from Jefferies, followed by Keith Bachman BMO.
Hey, guys. Thanks for the question a bit of a follow up to that last one but understand there is macro in a tough <unk> comp, but what is needed to explicitly grow double digits as it products I saw you lean more into SD Wan or does it go to market.
And then I may have missed it but just a quick clarification did you give a sense of RPM or annualized new business in the quarter. Thanks.
I will answer vet and electro he answered the <unk> part.
I think what's needed is mainly go to market, we wouldn't we see when we engage with customers when we deliver our message to the customer to the sea salt to the CIO. They loved the message and we expand the usage that's by the way when you see the growth of facility.
And the amazing testimony to what we've got.
We can do much better invest and veteran saying, we hired a lot of salespeople who are still trading most of them.
And internally, we have plenty of room to engage more with customers to call on more customers to bring this message in there.
Two more customers and in a much stronger voice to the marketplace and I think that's where the the main thing of course, we need more products on four of course, we are expanding the products, but that's actually not the comments that a year from customers when I meet with customers.
We're very enthusiastic about what we do and we just said just share more with us because.
It resonates with what we need and Rory I'll, let you talk about the <unk> daily is something that we usually don't disclose we disclosed as one time, but it grew high single digits.
Overall.
Thank you.
Next up is Keith Bachman from BMO, followed by Andrew Nowinski from Wells Fargo.
Hi, Thank you for the question Joe.
Wanted to ask about the product market dynamics, if I think about your guidance that you gave.
It suggests that products will go grow probably low single digits in FY2023.
You grew 4% in Q4, but I think it will be below that for the balance of 'twenty three.
And your.
Your competitor Fortinet gave guidance kind of mid teens for product revenue growth now theres, probably some backlog usage in that number.
But I'm just wondering you talk about the strength of your product and whatnot.
And the efficacy of it and yet you are still growing one of your major competitors. So I'm just wondering similar to the last question.
What what do you think needs to catalyze or ignite.
<unk> specific side of the growth and then if you could specifically address the SD Wan announcement that you made this morning, how important was that when when that might help manifest in terms of improved growth for the product side.
That's it for me. Thank you. Thank you. So first I mean as far as the first you're right. Many of the things you've said, but.
The way I view.
First we are shifting more and more business from a product perspective to a subscription business and by the way, we keep doing that we've infinity and even most of our new products and again, that's another highlight with will take some time, but we've started with many of our new products, we want to offer them on a monthly basis simple pricing model. So it's really easy for.
Customer to say I want to know secure a branch that starts at I don't know.
Our team of $15 per branch per month, very easy very affordable very simple model as opposed to the complicated business models that sometimes exist in our industry that does have an effect waiver, what's growing as product or not growing same for infinity again, the infinity contracts that we've signed throughout all of last year.
You have shown some effect in Q4.
Necessarily had the big effects on the quarter, when we actually got the contract.
Now I think the phenomenon of it we've seen over the last year is that our growth rate was kept going up and some of our competitor growth rates was going down I hope that this trend will continue as I said the economy now changed a little bit vis assumption, if you'd asked me that.
Three or four months ago I would be <unk>.
Far more optimistic and again I think we did.
Generate almost double digit growth rate this year and in some aspects internally, we did generate more than double digit growth rate.
And so that's that's the plan and the plan is to accelerate our growth there as I said, our potential and opportunity is reaching more customers engaging more and I think we're working very very hard internally to achieve it I think we have what it takes but we need to to get.
Our <unk>.
Together on that.
And when do you guys think SD Wan can contribute to kill.
I think that for more everything I know, we actually have a pretty healthy pipeline for SD Wan we have.
Tim.
We have customers waiting for it we are actually ever with many customers already using it in early access program usually to have some real contribution it takes between three to six months. This one I think is there some pent up demand ready, but still it's a product with.
Because its rollout SD Wan is usually to rollout too many branch offices. It takes a little bit more time, because it's not just installing it in one major location.
It's actually a longer rollout.
Okay, great. Thank you Alright next step as Andrew Nowinski from Wells Fargo, followed by Brian Essex with J P. Morgan.
Good morning, and thank you very much for the question. So I know your billings can be unpredictable due to orange deal activity. So I was wondering if you could discuss book linearity in the quarter and any any large deals you may have had in Q4 or lack thereof that might've impacted your billings growth in Q4, our notwithstanding that tough comp you have from last year.
Yes, so I think this quarter I think Gil also mentioned it we've seen less budget flush I think we didn't we didn't see any budget flush this quarter I mean last quarter. We thought we saw we had some mega deals.
<unk>. This is due to budget some of them due to budget flush in Q4 2021, and this quarter because of also the macro environments and also deals that the longer sales cycle. So we've seen some as some of these or defer the projects will be filled or slip to Q1 sovereign debt that in general Thats affected our that's what you're seeing.
The billing also need to mention is Gil also mentioned when we are finding signing infinity cointreau up you won't see it in the billings, mostly because the infinity contract is built based on specific payment terms since most of them are not being billed upfront. So it can be billed in the next day in the future periods.
No.
That's in terms of the buildings.
Alright.
Thank you.
Next up is Brian Essex with J P. Morgan followed by Patrick Colville of Scotiabank.
Great. Thank you good morning, and thank you for taking my call.
Gil I was wondering if you can make maybe kind of circle back on SD Wan.
Maybe one hit the decision to build versus buy and then two are you are you seeing the pull forward in Poland.
Poland for demand on a point solution SD Wan basis, or this full end to end SaaS fee.
Youre seeing is that is that kind of the larger driver here. Thank you.
I think there's multiple factors driving it on one end customers are looking for SaaS solutions that can do they can consume the security from the cloud some of it makes sense some of it might not still many many customers are deploying customers on site, which gives them better performance better latency.
In some cases, better economics, and the SD Wan element that talks about the network optimization now the reason to build versus buy first we are looking for vendors to buy we've looked in the past.
I think the real the real answer is that the SD Wan is very well tightly integrated into the gateway itself and we build the gateways and its integrated networking code, so buying an SD wan vendor and integrating it might take longer and might not necessarily generate better results. After all.
Having said that we've looked at many vendors with the even in the past almost completed the one deal to acquire an SD Wan vendor. If we wouldn't have signed the reason we didn't complete it is was the quality of the solution.
Today SD Wan solutions are still complicated.
I wouldn't say niche because there are some important vendors, but not.
Widely spread as they should be and we haven't found a solution that will be really the silver bullet to have the quality technology that could we can embed in our gateways.
Very helpful. Thank you.
Next step is Patrick Colville on Scotiabank, followed by shell Liao from Cowen.
Yeah.
Good morning team. Thank you for taking my question so.
From a financial perspective.
How should we model gross margins in 2023.
Because we've seen product margins rise for the last two quarters sequentially.
We think that that trend continues as supply chain constraints ease and then I guess similarly, I mean FX has been a big determinant.
For the last couple of quarters and I presume will continue to be the case in calendar 2023, So how should we model opex.
The FX impact to Opex.
Next year.
So I think oil first question so as for the gross margin. So as I mentioned I think we expect to have.
Additionally improvement again, we hope to see additional improvement unless something in the environment will be change in the supply chain, but right now it seems like we're going to have a more distinct.
We expect to see modest improvement in the gross margin.
Again to me I would say that again it can range between a quarter to half a point of the margin improvement of between quarter to a point to the margin.
As for the FX, So again as I mentioned also in.
In my presentation, we had the benefit of the assets of <unk>.
Estimated $10 million this quarter.
We expect to see also a benefit in 2023 as again, we edge that we.
One of our primary currencies in shekels, so we urge the shareholders for most of the <unk> for 2023, and we expect to see.
A benefit.
<unk> in 2020 fleet, but again, taking although we took all the stock goes into the model and I think.
It is something that of course these efforts will benefit us.
In 2000, and Tennessee, and that will help us by the way invest more without big effect on the margin.
I think we are using it for the good Sam.
Alright, thank you so much.
Next step is to sell only al followed by Ryan Macdonald.
Donna.
Good afternoon, guys Gil I know Paul is not on the call, but can you maybe talk to us about some of our initiatives over the course of the past a little less than a year and maybe as we think about 2023.
What's in store in that respect.
Each initiative you mean vets.
And which aspects all over initiatives sales marketing go to market that actually you brought up so I think we are doing a lot of things in checkpoint to create a lot of change and a lot of innovation in all these aspects. If you remember and I think we've created at the beginning of the year, what we call rocket Smith.
This kind of organizations that have more flexibility and more freedom to run fast integrating the go to market element to the product element and I think we had free rockets.
One was the email rocket based on acquisition, we did which actually grows very very fast I don't know we didn't mention it much today, but the email aspects vet acquisition is very successful and is contributing a lot to our growth and another one is the cloud one started the year. The cloud one we've actually did quite well in the fourth quarter and nice.
Nice growth in the fourth quarter and the last one is what we call the MTR MTR, which is the management of.
Kind of managed security for customers and that's that's a tiny startup, but overwhelming response from the market we have hundreds of customers.
We have a nice demand for Eaton Vance with very limited investment even to promote it readjust.
Nice response from the market to be services by the way these services or this technology. It's the same technology, but we will have in our SPR product. So we are actually leveraging one another so you can get it as a product in the SPR product relative to managed service with the NPR.
With the MPR.
Services, which we provide to date next to get at the beginning of the year with.
Created the new go to market organization appointed New leadership propel Hallenbeck based in Silicon Valley and again, she is building a very robust infrastructure for everything.
They're doing mainly changes again, I think we do bem lesser evolution more evolution, the checkpoint way and we're doing them nicely without creating.
Too much earthquakes actually think you'll see that going well, but she is doing a very very good job building an organization that can scale.
Too much.
We think we have the potential to a much bigger scale.
In the products organization. We also have a lot of investment in many areas from SD Wan to.
<unk>, which is cloud based delivery of <unk>.
Security the hole I mentioned DXP our technologies are also quite.
Interesting in terms of new technologies.
We've talked a.
I think it was last quarter about the Titan package, which.
And again some of it is great New security technologies, some of which is really new markets like Iot security.
So there's a lot going on in our organization.
We are building now new model for a partnership we've already partners. We've invested in the brand last year, So I think <unk>.
A lot going on in the organization right now.
Alright.
Thank you and.
Next step is Ryan from Guggenheim.
If I've only known you for I think half a decade, it's ray Ray Mcdonald from Guggenheim, but I appreciate it.
But we saw a good night.
Louis.
Good.
I want to double click on cash flow, if I could and again the comment that you made or.
Shifting towards more of a subscription based model and more flexible or buying programs so to speak.
Again, the impact of cash flow would be.
The impact of lower invoicing duration, and if youre seeing that this quarter.
What the impact of cash flow was this quarter from lower invoicing duration again, if youre seeing and then how we should think about that going into 'twenty. Three should we think about that as being a headwind to 'twenty three cash flow.
As we look forward.
So I think again I think it's tough to quantify the effect on the cash flow I mean in terms of in terms of moving to in terms of the duration, but I will say that yes, we've seen less less multi year deals more kind of the one <unk> that the customer's intent because of the macro environment the higher interest rates.
So we have seen more or less <unk>.
Also the effect on our cash flow something that we should again, our cash flow was this quarter was much more back end loaded I mean, usually Q4 has been backend loaded but this specifically quarter was much more back end loaded we've seen much higher billings in December you can see it also in our receivables in the balance sheets. So again, so thats thats also affected.
Our cash flow.
This quarter as for the future again <unk> also it depends on again on our billings next quarter and next year in order to quantify I mean again it seems like in it as long as these macro environment will continue we probably will see the same but again.
It's not something that we can there.
We can project.
Got it. Thank you alright. Thank you. Your next step is gray Powell from <unk>, followed by Brad Zelnick from Deutsche Bank.
Yeah.
Okay, great. Thanks, Thanks for taking the question.
Yes, so one for Gil.
And just looking back over the last few years demand across the firewall space has been pretty strong.
You all sound fairly cautious about 2023 to me it kind of sounds like 2020, Threes me more of like a digestion type year, our consolidation kind of year.
Fairly similar to what we saw in 2016, I think that was sort of like the last.
Cycle.
This is my read seem correct you does it feel like 2016 and if so.
Just on a relative basis like how do you feel today versus sort of the last consolidation period, but the network security.
First I think but we havent vectra is a lot of demand and there is a lot of need to continue with what we've done on network security what I see now is a little bit different it's not just digestion because I don't think that we finished all the refresh cycles and all of the upgrade cycle I think it's more for you would change in the economy again I mentioned it several times with <unk>.
Very good quarters in 2022, what we added in one way and then the fourth quarter was different now again wherever this difference will continue to hear heard some companies, saying that.
We reached the bottom in December I don't know if it will be that way or it will continue I hope it wont I think from when I speak to customer and as I mentioned I did a very nice towards the last few weeks.
Around the world and met with many many customers and partners as they see the needs they want to invest.
See the value in more security in this in the check point Infinity architecture.
But they can do without the part about the economy and right now I think it's nothing to do with network security or anything like that it's clearly the the.
More of the macro economy.
Behaves a little bit different in the last quarter.
Okay. Thank you very much.
Alright next step as Brad Zelnick from Deutsche Bank, followed by <unk> <unk> from Citi.
Thanks very much.
Jill just wanted to ask you about the buyback it's good to see the continued discipline.
On the share repurchases whitecap, the quarterly amount of $325 million and is there a scenario, where opportunistically, perhaps you'd look to buyback more stock and related is this a time to navy get aggressive with M&A.
We all know there is a ton of great technologies out there in some cases companies that are having trouble raising funding.
Maybe to do something even transformative effects.
So first your most of your questions are right on spot there is a possibility that we will increase it if we need to.
Yeah.
So far again, I think we've been doing that.
Policy for buyback for all over 10 years and it worked well, but again there is no I don't have any objection to see what if there is an opportunity in the marketplace. We will increase the buyback I hope by the way it will go the other way around.
In the buyback in terms of opportunities to acquire companies Youre, absolutely right there will be more opportunities.
But still I mean, when I look at the market and we analyze it all the time, it's not with.
We don't do it on a public market valuation starts to change a little bit even though still you can find a lot of cyber companies that are.
Losing tons of money and I'm not sure of it what you want us to do is to buy a company that will.
Cause us to start growing from.
Very nice earnings to fund.
Fund there.
Business model, which may or may not be justified over the long run that's one challenge.
On the private market I think we will see some opportunities in the future I'm not sure of a devaluation reached the level that we need to reach you had some that we do get once in a while a call from a company that.
We think is interesting and reached.
And reached this point of time that it might be interesting. So far we haven't made I mean again, we've made many acquisitions. If you look we've made it look like.
18 acquisitions over the history of checkpoint over the last three or four years I think we made like six or seven so its not that we are not active on the on.
On the M&A.
Frame, but.
In the future is definitely an opportunity, but we will do more and by the way is a good reason to keep some cash, especially if we will find something more transformative.
Then not with time underestimating spending a few hundred million dollars on our company is also big.
Big bet and a big investment, but maybe we'll find something even bigger than when it's good to have some cash.
To fund that.
Thank you.
All right next up is the T. Mo Boulanger, followed by our last caller Sami Badri from credit Suisse.
Good morning, good afternoon, and thank you for taking my questions and either for really a gal, but as I've taken more financial and quantitative perspective on this.
Going back to your margin guidance for calendar 'twenty. Three so we are seeing a compression in spite of the fact that you will benefit from the stronger dollar Mark basically in 2023, so what I wanted to understand is as you think about the go to market organization, the sales capacity to predict the productivity trends that intense.
And maybe the attrition trends you're seeing how is that changing if at all in 2023 and <unk>.
Where can we see potential up lasker, if youre changing any incentives to drive some tried to kind of this new product adoption and I'd love to get a little bit more granular on.
With scale or <unk>.
And if you will from the FX impact scale see margin compression. Thank you.
So first before I jump in May it is the more valuable the numbers, but because you asked about the sales force and so on so I think in the two.
2022, we grew the number of sellers there are a number of frontline salespeople, but like mid teens percent in 2020 free we still plan to grow it by.
Double digit number again, I think we will adjust it according to the economy, but we've already started the year with many people that were in the process and in the pipeline in 2022. So it's not just the question.
What will decide in the second half we have already started with a strong momentum again.
The way in the U S. When you hire somebody who joined in like.
A month or so so that's it.
Cycle, that's relatively short in Europe . The cycle is usually six months. So if we have somebody that started in January it maybe somebody that we've started recruiting in April and we've signed the contract in the kind of July August it's not it's a very long cycle and again.
Our sales force is very distributed around the world.
He was.
Not necessary in the U S.
It's dominated.
So we keep the investment on that we do want to use some of the FX.
The trends that we have to invest in our workforce. Some of it may be an existing sales force. Some of it is again to allow us to recruit more without any major effect remember if I would say that to grow the company by five or 10% the impact on the margin would have been much much bigger.
If we haven't using.
What we have.
What else are the trends that are impacting that by the way there is a trend in general of providing more cloud based solutions and many of our products and technologies are now delivered from the cloud or using the cloud the margins on these our are usually lower than the margin that we have on just the <unk>.
Software or even in some cases, just appliances cloud these expensive, let's remember that so we're cloud expenses are high again like everything we do in checkpoint I think we've managed very men women far more efficiently when most companies, but we see we see some M&A.
We have a very efficient operations.
But.
I think we will keep investing in that because it makes sense.
Gives us an opportunity to bring many more technologies to the market and up the level of security.
Thank you for Teva.
Yeah.
Okay.
Next up is semi badger.
Alright. Thank you last question.
Thank you Kevin.
My question is on any visibility you can give us on the harmony product portfolio. So that's my first question. The second question is when I go back to one of your product slides on blades you put a referenced in there that the blade product is now optimized for a 1000 plus applications or other type maybe vendors or integrations.
Can you describe or maybe elaborate on how hard it was for you guys to get to that point and how many other vendors actually have comparable integrations for a very similar type of product or solution set.
So I think what you meant with the blade is the SD Wan Blade I mean again, we have a software architecture at the core software blades, which we featured many years ago, but it's still a big part of our products are being built and now we built the SD Wan blade in the SD Wan build is very robust with we're supporting I think well over a thousand different application and we are at.
<unk>.
I don't exactly remember, but I think it's two free time, even more more supporting more application and optimized for more application.
And then our direct competitors.
By the way part of it is the investment in is the one part of it is the fact that it is integrated it is not a different product and it leverages the.
The knowhow that we have about the deep analysis of application, but we already have in our network security products. So that's the that's there anything I didn't answer him.
So fingers.
So I hope with our SD Wan product with <unk>.
Rich.
Market success with it deserves and I think many of our customers are waiting for it.
And then just the.
Harmony product portfolio of visibility and if you can give to us for 2023.
So the hardware is comprised for many different products with our securing users and access some of them are growing very fast some of them there is a.
We have different strategic folks on their future. The one was growing very fast and the ones that we are very happy with the harmony email.
Doing extremely well reaching.
Meets all the expectation from.
An important acquisition like that.
Integrates well with the rest of our technology like our anti malware engine is using that product there.
Fishing engine is used in many many of our other technologies everything that I said about centralizing. This threat cloud brain is working well sales are integrating quite well. It's in the beginning very has a separate sales force and vet with both most of the growth now most of the big part of the growth comes from the checkpoint enterprise.
<unk> and these are all the right signs because that means that we can leverage the checkpoint engine, reaching more customers and reaching more places so and let's not forget.
For years I've been cautious about wherever we want to enter into the human space or not because it's a crowded market.
Happy we did first because we see the success, but mainly because most of the attacks start with anemic. So it's really really important that we are there our competitors by the way are not there. So we know how to secure that email link and especially the cloud email, which is where the world is going to so I think that should.
I mean, if we if we do it right that you would give us many years of success and growth because the market potential there is very very high.
Alright. Thank you that concludes our call today. Thank you all for joining US we look forward to speaking you speaking to you throughout the quarter and we'll see you.
At the next earnings Thank you and have a great day.
Thank you bye bye.
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