Check Point (CHKP) Q1 2026 Earnings Transcript

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Date

Thursday, April 30, 2026 at 8:30 a.m. ET

Call participants

• Chief Executive Officer — Nadav Zafrir
• Chief Financial Officer — Roei Golan
• Vice President, Global Investor Relations — Kip Meintzer

Takeaways

• Total revenue -- $668 million, reflecting 5% growth, with $2 million below midpoint of company projections due to lower firewall appliance revenue.
• Subscription revenue -- $323 million, up 11%, meeting the midpoint of guidance and supported by strong performance in emerging technologies.
• Non-GAAP EPS -- $2.50, representing 13% growth and exceeding the upper end of guidance.
• Adjusted free cash flow -- $457 million, up 11%, and $70 million above the midpoint of guidance.
• Deferred revenue -- $2.06 billion, up 8%.
• Calculated billings -- $548 million, down 1% year over year, while current calculated billings increased 2%.
• Performance obligations -- $2.59 billion, an increase of 7%.
• Emerging technology billings growth -- 45% growth in calculated billings for emerging areas, including e-mail security and SASE, with CTEM achieving 96% ARR growth.
• Gross margin -- 88% on gross profit of $586 million, with gross profit rising from $564 million, primarily supported by R&D grants.
• Operating expenses (ex-R&D grants) -- $321 million, up 5%, with total OpEx before grants rising 14% and 12% on a constant currency basis; company expects about $100 million in annual OpEx benefit from Israeli incentive program.
• Share repurchases -- 1.9 million shares repurchased for $325 million at an average price of $170 per share.
• Geographic revenue breakdown -- EMEA accounted for 46% (6% growth), Americas 42% (4% growth), and Asia Pacific 12% (2% growth).
• Product revenue disruption -- Executives repeatedly attributed lower product revenue to short-term disruption from go-to-market model changes, primarily impacting firewall appliances.
• Q2 2026 guidance -- Total revenue of $660 million to $690 million; subscription revenue of $328 million to $338 million; non-GAAP EPS of $2.40 to $2.50; adjusted free cash flow of $145 million to $175 million, with company noting timing shifts in significant payments affecting quarters.
• 2026 full-year guidance update -- Total revenue now expected at $2.77 billion to $2.85 billion, reduced due to lower appliance revenue projections; subscription revenue and non-GAAP EPS guidance unchanged.
• Strategic appointments -- Four new leaders added: Sherif Seddik (Chief Revenue Officer), [indiscernible] leading CTEM as part of leadership team, Adam Elin as General Manager of AI Security, and Rafi Kretchmer as VP of Global Marketing.
• AI security initiatives -- Company launched AI Defense Plan, announced AI factory security blueprint with NVIDIA integration, established partnership with Google Cloud, and introduced enterprise advisory service for secure AI deployment.
• M&A activity -- Completed an acquisition for approximately $92 million in February; management continues evaluating bolt-on and transformative deals aligned with company’s four strategic pillars.

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Risks

• Management identified "short-term disruption to the rhythm of our sales execution," primarily in firewall appliances, as the main driver of current revenue headwinds due to go-to-market model changes.
• Guidance was revised lower for full-year total revenue, directly attributed to continuing near-term softness and sales cycle elongation in product (appliance) revenue.
• CFO Roei Golan stated, "for the second quarter, we do expect to see a decline sharper decline in the product revenues," but expects gradual improvement in the second half.
• Increasing memory costs were noted: "memory costs are continued to surge, and I don't see it stop, I mean, in the near term," though management could not confirm customer demand elasticity to these cost trends.

Summary

Check Point Software Technologies (NASDAQ:CHKP) reported modest topline growth supported by continued strength in subscriptions and emerging cybersecurity technologies, while appliance revenue declined due to the ongoing transition in its go-to-market model. Executives highlighted both a pipeline recovery and a deliberate repositioning for long-term platform-based growth, but acknowledged revenue headwinds and revised full-year guidance downward. Recent leadership hires and expanded AI security solutions reflect strategic investment aimed at capitalizing on evolving enterprise threats and new business opportunities around artificial intelligence.

• Management maintained stable non-GAAP EPS and subscription revenue guidance, emphasizing confidence in margin and ARR resilience despite short-term sales execution issues.
• Emerging segments now constitute just under 30% of subscription ARR, with SASE, CTEM, and e-mail security called out for significant growth and cross-product synergies.
• Leadership said, "And these delays mainly impact the second half or the first half of the year," referencing sales execution disruption but cited a "very nice improvement in the last few weeks" in pipeline creation.
• AI security contributions remain immaterial for 2026 revenue, but both stand-alone and bundled platform growth are expected to become more significant over time, with "substantial" impact anticipated beyond 2026.
• Company confirmed no major macroeconomic impact on performance, attributing challenges instead to internal sales realignment and workforce transitions across enterprise customer segments.
• Gross margin and adjusted free cash flow benefited from an Israeli government R&D grant, with $27 million recognized in the quarter and $100 million targeted for the year.
• Share repurchases reduced share count, supporting EPS growth amid flat GAAP net income.

Industry glossary

• SASE: Secure Access Service Edge; a cloud-native architecture that combines networking and security for secure connectivity to applications, users, and devices.
• CTEM: Continuous Threat Exposure Management; a proactive approach to identifying, prioritizing, and remediating security risks on an ongoing basis.
• ARR: Annual Recurring Revenue; the value of recurring subscription contracts normalized to a one-year period, commonly used to measure SaaS and subscription performance.
• Hybrid mesh: A network security architecture combining multiple security solutions to apply unified policy, threat prevention, and management across distributed environments.

Full Conference Call Transcript

Nadav Zafrir: Thank you, Kip. And thank you all for joining us. So I'm going to begin with the key operating dynamics of the quarter and obviously talk a little bit about how we're advancing our strategy to drive sustainable long-term growth. So to begin, in our first quarter, we delivered double-digit growth in non-GAAP earnings per share and adjusted free cash flow with revenue growth at 5%. Subscription revenue remained a key strength, driven by strong demand across our emerging technologies, which actually generated 45% growth in calculated billings led by e-mail security CAM and SASE. At the same time, we do see a decrease in times research projects that resulted in lower-than-expected product revenues.

As we discussed in our last earnings call, during the second half of 2025, we conducted a comprehensive go-to-market assessment with the objective of accelerating both new logo acquisition and increasing wallet share in large enterprise accounts in order to enable the successful execution of a multi-pillar platform strategy. So based on this, we implemented changes to our go-to-market model to align with these goals. And the transition to the new model did create short-term disruption to the rhythm of our sales execution and primarily affects our appliances business.

Now while we're confident that the changes made are spending the sub for success in the mid and long term, we do see a short-term impact on our business that will negatively affect our 2026 revenue projections. We believe these headwinds are transitory and they reflect a deliberate reset to position our business for improved execution and scalability. We're already seeing that the current pipeline trends and ongoing customer engagements and our plans to further invest in our firewall business make us optimistic about the future growth trajectory.

Beyond that, our strategy continues to be anchored around our 4-pillar approach, which we believe is well aligned with the evolving security requirements of enterprise, particularly as AI adoption expands the threat landscape. And in support of our go-to-market execution, we're strengthening our leadership team with 4 key appointments. So first, Sherif Seddik has been named Chief Revenue Officer and will lead our go-to-market organization. Sherif has successfully led our international sales business over the past few years. He brings more than 3 decades of global sales leadership experience, and he'll be replacing Itai Greenberg. I want to take this opportunity to thank Itai for his continued support during my first year and for his leadership in the go-to-market changes.

Beyond that, [indiscernible], who has led our CTEM offering since the acquisition of Cyberint and has driven 96% year-over-year ARR growth will join the leadership team. You know that as organizations operate in this increasingly [indiscernible] exposure management is becoming mission-critical because it enables security teams to rapidly identify emerging threats. And the most important part is materially accelerate their mediation. And I think we have an advantage here, and I'm happy to welcome [indiscernible]. Alongside that, to lead our AI pillar, I'm happy to say that [ Adam Elin ] has joined as General Manager of AI security, and we'll also join the leadership team.

Adam brings deep experience at the intersection of cybersecurity and large-scale enterprise security operations because in his previous roles, he was a CISO fidelity, [indiscernible], but he's also a founder of Blue Box security. I think Adam adds really a proven operator perspective, which is so essential in this time and we will focus on building the platform, our AI security platform to scale with the speed, the rigor and a strong commercial pipeline. And then lastly, Rafi Kretchmer is appointed a VP of Global Marketing. He replaced Brett Theiss, so we wish well on his future endeavors. Beyond that, look, you're all aware, AI is a watershed moment for the security industry.

When you look at the emergence of these frontier AI models, including metals and GPT class, they're driving 2 structural shifts in cybersecurity. First one is that the barrier to sophisticated cyber attacks is literally collapsing because AI is democratizing capabilities that were once a exclusive to nation state and some very large elite "criminal organizations" and this is exposing a far broader set of enterprises to material risk. So that's number one. Number two, cyber attacks are undergoing structural industrialization. The Agentic AI enables [indiscernible] to continue scan global infrastructure, and they're generating a continuous flow of novel attack techniques. And so manual operations are giving way to automated attack pipelines.

And this is what we call a checkpoint, the AI attack factories. Now when you look at the convergence of these 2 forces, it really creates a different threat environment, larger attack population that is executing more sophisticated campaigns with greater speed and volume and the time to exploit is shrinking dramatically. And we believe -- I believe that this is directly validating our ethos of prevention first, which we're second to none in the industry, in my opinion. Beyond that, a checkpoint, we're not waiting for this threat environment to materialize. Our response is ready and active. It's structured, of course, across our 4-pillar framework. The security for the network through our hybrid mesh, CCAM and workspace security.

Now during this quarter, we introduced solutions to secure enterprise AI transformation. As an example, we launched the AI defense plan which is designed to secure the genetic enterprises across employee AI usage, the applications and the agents that both of these use the people and the applications. Beyond that, we introduced the AI factory security blueprint. It's integrated with the NVIDIA GPU service pinning on the server itself. And this provides end-to-end protection for AI infrastructure and we are very bullish about this. Most recently, we also announced our partnership with Google Cloud. We're integrating this AI Defense place with Germany enterprise agent platform. And this can deliver real-time runtime protection at scale.

We also delivered AI-driven exposure management, enabling customers to close the remediation gap through: one, improved intelligence, than the risk prioritization and finally safe remediation, which is critical, the time to remediate in organizations today. And then finally, we launched a secure AI advisory service to help enterprise government deploy and ultimately scale AI with security and doing so responsibly.

And so to close my opening remarks, our experiencing near-term headwinds in our clients business and adjusting our annual revenue guidance, we remain confident in our ability to gain market share in this expanding security market -- the emerging technologies continue to perform strongly and position Checkpoint in a really good place to secure this rapidly growing enterprise attack surface driven by our adoption and we believe that our differentiated strategy, our core capabilities, our strong financial profile with its industry-leading profitability. And at the end of the day, a disciplined execution over time position us to really benefit from the accelerating demand for secure enterprise and create AI, which is transforming the organizations at scale.

So before I take the question, with that, I'll turn to Roei to give you some of the financials.

Roei Golan: Thank you, Nadav. So thank you, Nadav, and thank you, everyone, for joining the call. So as Nadav mentioned, the third quarter was a solid quarter with 5% growth in revenues, driven by 11% growth in our subscription revenues. Our total revenues reached $668 million and were $2 million below the midpoint of our projection as a result of lower revenues from firewall appliances that impacted our product revenues. When we are looking around subscription revenues, they grew by 11% to $323 million and were at the midpoint of our projections. Our adjusted free cash flow was very strong and reached $457 million, $70 million above the midpoint of our production and grew by 11%.

Our non-GAAP EPS was $2.50 and was exceeded our guidance with 13% growth year-over-year. So as mentioned, we had 5% growth in revenues, while our deferred revenues grew by 8% to $2.06 billion. Our calculated billings totaled to $548 million reflecting a 1% decline year-over-year, while our current calculated billings grew by 2%. Our [indiscernible] performance obligation grew by 7% and reached $2.592 billion. So as we -- as Nadav indicated earlier in the call, we had lower-than-expected product revenues, mainly as a result of the disruption affected by the changes we made in the go-to-market organization. As we are looking in the second quarter -- into the second quarter, we do see this disruption [indiscernible] plants revenue.

But based on the finance that we see, we expect to see an improvement in the second half of the year. It is important to note that our new business continues to be stable, and our fire subscription ARI continue to grow year-over. When we are looking on our subscription revenue, we do see projectory for reacceleration, and we do expect to see acceleration in our subscription revenues in the second quarter and for the full year driven by strong demand by emerging pillars, mainly by [indiscernible], system and SASE. So as indicated, our total subscription business continues to be strong. We continue to experience strong demand for our emerging products, which remains the primary driver of our revenue growth.

In Q1, our Email Security SASE in ERM in total exceeded growth in ARR and over 45% in calculated billings year-over-year. It is important to note that although the revenues are still not significant for the total business, we see a significant growing finance for our AI security offering and that's together with the [indiscernible] expect to drive the subscription revenue growth in the next few quarters. When we are looking at the revenues by geography, so 46% of our revenues came coming from EMEA, which had 6% growth [indiscernible], 42% of the revenues came from America and believe a 4% growth year-over-year, and the remaining 12% came from Asia Pacific and this had 2% growth.

When we are looking on the P&L for this quarter, so gross profit increased from $564 million to $586 million, representing a gross margin of 88%. Our operating expenses, excluding R&D grants, increased by 14%, while on a constant currency basis, our OpEx increased by 12%. Q1 results include approximately $27 million of benefit from R&D grants to be received at the new Israeli incentive program law, which was ratified during the period, and that's reflecting the surge impact in our financial results. Our operating expenses, net of R&D grants were $321 million and increased by 5% year-over-year.

When we're looking on these grants, we do expect to have an approximately benefit for the total year of $100 million on our operating income, reflecting the new law that was just approved. So just finalize. The increase in our OpEx is primarily as a result of our increase in our workforce as a result of the investment in our AI security and investments in sales and marketing program. Looking on our non-GAAP operating income, it continues to be strong at $265 million or 40% operating margin. Our non-GAAP net income increased by 8% and reached $265 million, while our GAAP net income reached $192 million similar to last year.

Our non-GAAP EPS grew by 13% and reached $2.50 while our GAAP EPS was $1.81, represent 5% increase. Moving into our cash flow and cash position. So our cash balances as of the end of the quarter, together with master [indiscernible] short-term deposits reached $4.4 billion. During February, we completed the acquisition of [indiscernible] for approximately $92 million of net cash consideration. Our adjusted free cash flow increased by 11% and reached $457 million. In addition, we continued our buyback program and purchased 1.9 million shares for a total of $325 million at an average price of $170 per share. To summarize.

So strong double-digit growth, non-GAAP EPS and adjusted free cash flow, we do see continuous strong demand for our emerging technologies SASE, e-mail security system. And from the other hand, we did see -- we do see in the near term lower new business from firewall that affected our revenues. When I want to go into the guidance for the second quarter and for the full year. So for the second quarter, our total revenues are expected to be between $660 million to $690 million. Our subscription revenues expected to be between $328 million to $338 million and non-GAAP EPS is between $2.40 to $2.50 while our GAAP EPS expected to be around $0.70 less.

While our adjusted free cash flow is expected to be between $145 million to $175 million, regarding the cash flow, the free cash flow, important to say that there is some -- there are some payments, significant payments that moved from Q3 to Q2. But again, that's mostly shifting from Q2 to Q3. When we are looking on the full year guidance, so as a as indicated, we are adjusting the revenue guidance, our cost of revenues guidance for the full year. The new -- the [indiscernible] is between $2.770 billion to $2.850 billion. That's a reflection of expected lower revenues on firewall appliances mainly in the second quarter. Our subscription revenues were not changing.

We do see strong demand for emerging products, and we opt to finish in the upper end of the range, but we are keeping the same range for the full year. Same thing for non-GAAP EPS, we are not changing our non-GAAP EPS expected to be between $10.05 to $10.85. GAAP EPS is going to be slightly higher, again, mainly because of lower share count and slightly higher acquisition-related costs. And our adjusted free cash flow, we are not updating the guidance, same as we gave between [indiscernible] I'll stop sharing. [indiscernible]

Kip Meintzer: Sorry about that guys, having a little bit of technical difficulty. Starting off today's Q&A is going to be Brian Essex from JPMorgan, followed by Rob in the Piper Sandler.

Brian Essex: I wanted to dig into product revenue performance. We'll take the easy question. was macro or customer decisions to sweat assets not a factor at all? And if not, can offer a little more color around the depth of the go-to-market changes. Where was the friction in the process most apparent? Where did the system break down? And what gives you confidence that this is just a near-term issue?

Unknown Executive: Thanks. So look, I don't think the macro is the issue here. When you look at our -- the changes that we've made to our go-to-market, they are significant. So it's optimizing accounts to account managers. It's doubling down on our marketing, doubling down on our channels. But it did create a short-term headwind in terms of execution as many of our people changed their role or changed accounts, and I see this as the main driver or the main headwind that we're seeing in terms of the firewall business. So I don't think this is -- we don't see a macro problem. We're actually already seeing that the engagement with our customers and the funnel going back to normal.

So we're optimistic that this is sort of a blip but it does take a little time to sort of get the motion back and everybody in their seats, et cetera. But for the long run, we believe this is the right thing to do, and we're going to continue to invest. Now this is just on the workforce, but also leadership changes in America leadership changes in other areas. So there's a process here that we're going through. I think we're at the tail end of the disruption and very optimistic about the future. And at the same time, when I actually look at the demand side, we're seeing different areas of growing.

So as an example, we're very bullish on new AI data centers where I think we have a very unique capability for the longer term, that's how we see the market, and we're optimistic.

Kip Meintzer: Next up is Rob Owens from Piper Sandler, followed by Joseph Gallo from Jefferies.

Robbie Owens: Obviously, the world has been changing quickly over the last 6 weeks. I'd love to understand your perception relative to what's happening and how that's influencing Checkpoint's business. But in line with that, it seems like you're losing momentum at a critical time for cyber here. So how do you ensure that this doesn't lead to longer-term share losses as customers are having to make decisions in the near term to protect against these next-generation threats?

Unknown Executive: Well, honestly, I actually think that we're gaining, not losing when you look at the big picture, right, take [indiscernible], an example, right? We think that, as I said, this is going to create a demarketization industrialization and change the nature of the business. And I actually believe that we're really well positioned to answer that. At the same time, when you look at the relevant pillar, [indiscernible] has grown 96%, e-mail, which we are one of the best-in-class in the industry and ready for this AI revolution is growing over 40%, et cetera. So that's one thing.

The other thing is when you look at the fundamentals of the change in cybersecurity, I actually think that our ethos of prevention first as an example, if you look at the latest reports by NSS and [indiscernible]. Again, once again, we're at 99.9% ability to stop a tax of known CBEs. This was always important. I think now it's becoming really critical because that's exactly the change that's happening. You're going to have to be able to block as fast as possible or everything that is possible and then you're going to have to remediate extremely fast. I think from both sides of the equation, we actually have an advantage here.

Kip Meintzer: Next up is Joseph Gallo from Jefferies, followed by Adam Tindle of Raymond James.

Joseph Gallo: I know you talked about the impact to appliance execution, but I think the most exciting part of the story is the subscription growth and the potential for acceleration there. But if you look at current billings, and you take out products, that only grew 3% year-over-year in 1Q. So just you're guiding to 12% subscription growth and acceleration in the back half. Maybe just walk us through a little bit more about the confidence in that? And then just any broader commentary on how we should think about billings going forward.

Unknown Executive: So I'll take it. So you're right in terms of current billings, excluding products, but that takes into account also maintenance and software and maintenance updates. And actually, pretty flattish right now. So if you're excluding that, so actually the growth of subscription is much higher subscription billings. And we do see, by the -- we see the final even for the second quarter and also -- and mainly for the second half of the year. We see very strong demand for our subscription packages, our subscription offering, if it's email, [indiscernible] we discussed. And also AI security.

Also the numbers are still not significant in terms of bookings for AI security, but we see very significant funnel that was created just in the last few weeks. We see the enthusiasm about it. We have a new leader there. And now that's managing this business. So definitely, we feel positive about the subscription also for the next few quarters to be accelerated.

Kip Meintzer: Next up is Adam Tindle from Raymond James, followed by Shaul Eyal of TD Cowen.

Adam Tindle: I just wanted to just take a step back to kind of 2 major things that we're having to digest here on this call. The first one, I want to understand what exactly is happening to product revenue that is causing this revision? Is there changes to terms of distributors? Is there issues of supplies and shipping? What exactly is changing and happening that's causing this mechanically? And the second thing that we're digesting here is the go-to-market changes that you're implementing I wonder, we've gone through this before with checkpoint in the past, a number of changes to go-to-market leadership.

When you look at these, if you could maybe compare and contrast some of the things that have been done in the past to this time, what you've learned and what might be different with these go-to-market changes?

Roei Golan: I can start on the third one, and Nadav will take the second. Yes. So on the -- in terms of the product side, same affected the product. So we did the changes in the go-to-market organization. part of these changes were a lot of changes for assignments for eco managers that will work from large enterprise and enterprises that moves from accounts to other accounts. This has some kind of -- again, something that was expected, but that had more disruption than we expected on the business, mainly on the new business.

On the new business on the -- I'll remind you that the funnel for research projects for new business on firewall takes a little bit more time than the sales cycle is longer than a sales cycle for selling send e-mail or other products or this kind of product profile is usually takes longer. And we see disruption in final creation mainly in Q1, that's affecting mainly some of it in Q1, but mainly in the second quarter. And therefore, we see the finance starting. We see a very nice improvement in the last few weeks after all people are on and the relevant roles and they are starting to open their accounts.

And we're starting to see the finance creative in the second half or the second half of the year. But as we mentioned, there is a near-term headwind, specifically for the second quarter. Nadav, do you want to take the second one?

Nadav Zafrir: Sure. Adam, thanks for the question. Look, we I would say a couple of things. Number one, it's my job to continue and optimize and see that I have, that we have the right leaders in the right place I think that one change that we're doing, which is, I think, a differentiation is beyond just the structural changes that Roei spoke about. We're also investing more in marketing. We're doubling down on the channels. To your question about the personnel changes that we're conducting, we do want to bring strong leaders that come from the security business with the right experience, right? So in our last earnings call, we announced Rachel Roberts, who's taking as President of Americas.

We -- and she has experienced vast experience in the cybersecurity market. Tom alone joined us and needing the global Adam Eli comes from the industry and is going to be the AI security. So the idea is to bring seasoned leaders that know this business and then put like we go-to-market organization. So these 2 things work together. And the third thing is, which we've been speaking about is the multi-pillar approach that we're coming with. So all in all, I'm very bullish about where that is going to take us. But I do acknowledge that in the first quarter, this has created a disruption, but I think it sets us up for success as we go forward.

And you'll see more people joining us at different levels from different companies as we are just getting the right people, the right data, the right processes to create this sustainable growth. And we have the vision, we have the mission. I really believe that we have a meaningful headwind with the products that we have, and we're bullish about where that's going to take us.

Kip Meintzer: All right. Next up is Shaul Eyal, followed by Shrenik Kothari.

Shaul Eyal: Nadav [indiscernible] are we maybe sticking with the product revenue question as you guys know, checkpoint as well as its competitors. You guys are selling a number of appliance families, low, mid, high tier markets. Is there a specific market here in which you're seeing increased pressure or the current softness is pretty much across all market tiers?

Unknown Executive: It's across what I would say, mainly around the large. And again, many of the results of the disruption in the go-to-market because there were many changes to assignment of enterprise and large enterprises are many consuming the large boxes. So that's -- I would say that. But again, we see the cost of bottom.

Unknown Executive: I will say this Shaul that -- I'm trying to put together the trends that are coming. And I know that this is sort of zooming out a little bit, right? But when you think about the priorities of large security organizations in the -- today and in the next couple of years, which I think are going to be chaotic. If you believe that this democratization industrialization of the attackers, and the changes that agentification is doing in everyone's network is real, then I think that our firewalls are actually very well positioned for this future.

It's nothing else because of the ability to prevent every known CVE and deploy it through our IPS in hours, not days or weeks. This is becoming more and more critical. I know that we've been preaching this for a long time, but I think this is now going to become more important. And I think gives us an advantage not with -- only with the customer like growing with the customers that we have, but going after new logos, which is actually a part of the change that we've made in the go-to-market organization. Now as [indiscernible] said, getting new logos in CTEM is much faster than getting new logos and firewall.

But I think we have what it takes, and we've done the adjustments we put the right people in the right places. We'll continue to do it. It's never good enough. But I think it actually gives us a headwind not only in the emerging categories but also in the core in the firewall, which is alive and kicking it, forget checkpoint for a second. I think when you look at where the world is going right now, network security is becoming so much more important. It's one of the only places where you can really prepare an organization for the AI adoption. It doesn't happen overnight, but I truly believe this is a tailwind for Checkpoint.

Kip Meintzer: Next up is Shrenik Kothari followed by Keith Bachman from BMO.

Shrenik Kothari: Yes. Just maybe to switch gears from appliances, Nadav, you mentioned about the data [indiscernible] and factory blueprint and between that and the new AI defense plan, the Gemini agent integration, the sector AI, it seems like you are trying to go after multiple layers of the enterprise study strategically very compelling and talk about the opportunity. But just how should we think about monetization of the top from where you see the near-term opportunity this year in the next 12 months?

Nadav Zafrir: Yes. So I'll say this, it is a process. We're making very investments, right, in a couple -- I think 6 months ago, we told you about the acquisition of [ Lakera ] as an example. This is where we're building a truly foundational model. We believe that if you look at the security for AI, you won't be able to use existing large language models that can do everything known to humanity right phones and protect. But rather, if you want the latency, the accuracy in the cost, we are going to have to train our own model. So that's a huge investment. We're investing in the researchers, we're investing in the GPUs.

We're investing even thinking out of the box, we created a game called Gandalf where we have over 1 million worldwide users that thousands of them attack us every day so that we can put that into the -- to our small language model to continuously breed it so it can get better and better. That's a big investment. Now on top of that, we're building security for AI as a platform, so for users, for employees, for applications, whether they're looking inside or to customers. And both of these, both people and applications using agents. And we're doing the security to the people. We're securing run time. We're doing it, as I said, with Gemini.

We're also doing it with Copilot for Microsoft. Now all this is heavy investment. Now Adam is coming in to lead also the commercial side of this. We're hiring the first salespeople to drive this. And we think that it's going to be still a small part of 2026, but each potential for the future. That's one thing. Beyond that, it's also going to feed into our other pillars because by having those foundational models, we also have people that are simulating sort of in what we call the future labs, what these attacks of the future are going to look like. So it's not just the AI pillar.

It also feeds into our intelligence, it feeds into our e-mail security it feeds into our endpoint security. And I think over time, the value of real security, real proactive security is going to become more and more important. So at the end of the day, it's a big investor but I think it's essential, and I think it positions us well for what's coming.

Kip Meintzer: All right. Next up in place to Keith Bachman is going to be Todd Weller and that will be followed by [indiscernible].

Todd Weller: Just a question on memory pricing. What are you seeing in terms of impact? More importantly, how are you thinking about it kind of going forward over the remainder of this year? And then any kind of additional pricing actions being contemplated?

Unknown Executive: So memory pricing continue to inflect to increase. I mean we see this trend continues. As I mean, as for what we are looking at is when I set our revenue -- our product revenues, I talked about it already when we gave the full year guidance. We took into account some disruption from the memory cost, fundamental cost also on the firewall business. Right now, I think it's tough to say if there is anything related to that. I mean we are looking on the final for the second half of the year, we see good finance for firewall. So I mean, tough to say how it will impact right now.

I don't know to tell you it impacted the behavior of our customers in terms of buying firewalls buying the clients. But definitely, I can tell you that the memory costs are continued to surge, and I don't see it stop, I mean, in the near term.

Kip Meintzer: Next is [indiscernible] with BofA.

Unknown Analyst: I keep asking you the same question. I'm going to come back to the same question. You joined the company a few years ago with hope that growth is going to accelerate. You've done many things on sales on products and growth has decelerated instead of accelerating in the sense that we are now at 5% environment. It's just not big enough for such a great space there could not be a better space for you to grow and accelerate revenues -- revenue growth. So the question is, what is not working with the strategy? What is not working? How can you change the growth trajectory to the point that we see double-digit sustainable double-digit growth.

And really to synthesize the question, the issue is what is the problem? Meaning, is it about sales execution? Is it about portfolio? Is it about the employee composition and the fact that maybe a culture needs to change. I'm trying to understand -- what do you -- what can you do in order to change the growth trajectory?

Unknown Executive: Well, first of all, I totally agree that we couldn't be in a better industry right now. And I think that, like you said, that's why I'm here, and that's what I'm here to do. Look, as we said before, yes, some of it is execution, and that's why we're making these changes that we just spoke about, which are meaningful, hundreds of people, getting new accounts, moving seats, pretty new leaders I think it's essential, giving us a short-term headwind, but I think we'll drive that sustainable growth that you're looking for.

At the same time, I do want to say that when you look at the total product portfolio that we have, although it's still not the biggest part of what we do, if you look at the emerging technologies that we have, right, e-mail, CTAM, SASE and hopefully -- and now joining with security for AI, that as [indiscernible], as we spoke about before, is going really, really fast and becoming a bigger piece of what we're doing. So all in all, I think that the vision and the strategy are there, we're making the changes that we need to do. it does take time.

And we need to continue course and have the patience to get there because we need to do it with discipline. And that's what we're doing, and it's going to take time. But believe that we're in the right business with the right products. In every one of the pillars that I spoke about, we're also looking at acquisitions. And I believe that when you bake all that together with the leadership that we're putting in place, we'll be in a good place in the future.

Kip Meintzer: Next is Joshua Tilton from Wolfe followed by Jonathan Ho of William Blair.

Joshua Tilton: I love getting no warning. But with that in mind, I'll take you to one. Maybe one for Roei. Can you just reiterate exactly what you expect in the second half for appliance. I wasn't sure if you said stabilize or recover? And then maybe just talk to kind of the visibility you have or maybe the confidence you have around that view?

Unknown Executive: So for the second half of the year, you do expect to see improvement. Right now for the second quarter, we do expect to see a decline sharper decline in the product revenues. But for the third quarter and the fourth quarter, it's going to be gradually. We receive a much better funnel also for the appliances. And we do expect to see improvement there. It doesn't mean that we're going to grow in Q3 and Q4 product revenues. But definitely, we're going to show better performance compared to what we have -- what in -- what we had in Q1 and what's expected for the second quarter [indiscernible]

Joshua Tilton: Can you just talk to like what's driving the confidence in that view? Is it just what you see in the funnel? Like any incremental color would be helpful there.

Unknown Executive: So we see progress in the -- we see improvement in the [indiscernible] we're looking. We are checking all the time, I mean, these metrics on a week year basis. We see improvement in the final for the second half of the year. We see very nice deals, large deals in the funnel that are progressing. And we -- and again, we are doing these checks. We are doing the discussion with the go-to-market leadership of the world we feel more confident about the second half of the year. We do see the already some nice deals have been we already won over competition, or our competitors, win backs or cloud enterprises.

Of course, it's not going to be -- we're not going to see revenues in the second half of the year, but we see some -- these kind of deals being closed and will affect our revenues in the second half of the year. But all of that together put us in much better -- I mean much better view for the second half.

Kip Meintzer: Next up is Jonathan Ho, followed by Peter Levine.

Jonathan Ho: You referenced some strong growth in your securities for AI solutions, but they're still relatively small contributors. But with that strong pipeline build, particularly in the last couple of weeks, when do you expect AI security to be more of a material contributor? And will this be more sort of stand-alone products or can there be maybe a stronger given the spear type solution where you can land some new customers? So cross-sell within your base versus [indiscernible]

Unknown Executive: Yes. Thanks for the question. Look, early innings, right? And I think to become a substantial part of our revenue, that will only happen in -- as a stand-alone that will only happen and it's a big investment. Organizations are going to inevitably even those that are trying to sort of slow down the adoption inevitably need to adopt new AI for their employees, for their applications, et cetera. We're all seeing it in our own personal life. We're seeing it in our businesses, et cetera. but it's a process. And so as a stand-alone business, I think to be substantial to Check Point, 2027. Beyond that, you're right. It's not just the stand-alone.

So for example, it's part of our workspace pillar where workspace employee usage is sold as a bundle through our workspace when you look at the infrastructure level, where we spoke about the firewall business, being able to double down on the infrastructure and embed AI in the NVIDIA GPUs. Again, as Roei said, we're only seeing the first links of these projects happening. But as they happen, I think we are gaining advantages. So to answer your question, I think it's both as a standalone and as a contributor to our other pillars.

And even to our -- not just as our product is one of the fastest-growing things in security for AI is the AI red teaming, as an example, which is a part of our services business. So it does have an impact on each one of those and as a stand-alone but to be a real impact on our revenue and become a significant part of 2027.

Kip Meintzer: All right. Thank you, Jonathan. Next up is Peter Levine, followed by Saket Kalia.

Peter Levine: Maybe just to double down. So we last reported mid February, just help us what -- like when do you really see the material impact to the go-to-market strategy? And then maybe help us understand the deals that were impacted are these upsells renewals or like net new deals meeting, what's the level of confidence that if it was net new deals since you're still in the pipeline? Obviously, you talked about stabilization in the second half. But just help us understand like the impact on like where [indiscernible] for?

Unknown Executive: I think when we report it back then in February, we were in the middle of deposit. I mean, we are [indiscernible] we started it some time in January, but in the middle of the process. We did expect some kind of disruption back then. But when we looked and after when I -- when we look -- we are looking at February and March, we did see this disruption in our funnel, affecting the funding creation mainly for the second quarter and some for the third quarter, we did see some delays on finance creation. We see that coming with we do see these delays expecting it.

And we've seen in the last few weeks, the impact, you see that in the last few years, we do see a significant change in the finance creation. And these delays mainly impact the second half or the first half of the year. And again, there are -- of course, there are several deals that have been pushed from one -- from first half to the second half. It's important to say that renewal business looks stable. We don't see any -- many affected new businesses and in firewall and that's the main change. I mean when we put back -- I mean we are being in the middle of the process.

And as Nadav said, today, we are -- I think we are in the last inning, we're almost done with these changes, and we are now more confident what we see for the second half of year.

Kip Meintzer: Up next is Saket Kalia, followed by Eric Heath.

Saket Kalia: Okay. Great. I want to shift gears a little bit and Roei, maybe the question is for you. The growth in emerging ARR and billings was great to see, 40%, 45%, I think those numbers were. Can you just remind us how big those businesses are in aggregate as a percent of subscription revenue. And then I want to connect that back to some of the go-to-market changes. How can some of the go-to-market changes maybe support growth in those emerging products going forward?

Roei Golan: So we don't -- we're not disclosing it, but these specific 3 products are slightly below, I would say, slightly below 30% of our ARR for subscription. So think about that area, the specific 3 products. And Nadav, do you want to talk about [indiscernible]

Nadav Zafrir: When you look at the go-to-market adjustments that we've made, it does support exactly what you said, right? We're doubling down investment on these pillars but also integrating our work -- our sales sports together with them. That is when we want to become a multi-pillar organization, we want our account managers to be able not just to do firewalls but also the emerging business. So that's part of the change that we're doing. Beyond that, we need to go to our channels and introduce them to these new products, which some of them are novel to them. So you're right. On the one hand, we need to push these emerging technologies and capabilities faster and we're doing that.

But at the same time, we are going to go after new logos, win backs, et cetera, with what I believe is a tailwind of what's happening from the attackers perspective and our capabilities. And at the end of the day, it's obviously the change itself is disruptive. But now I think we're at the tail end of the discussion, as Roei said, we're starting to see the upside but it's never ending. We've got to get the right people. We've got to get the right data. We got to get the right processes.

And then again -- but ultimately, it's putting a really big focus on our go-to-market all the way from funnel creation, demand creation, channels, the people, the processes, et cetera. And that's what we're doing. And I think it positions us for the future.

Kip Meintzer: All right. Next up is Eric Heath followed by Roger Boyd.

Eric Heath: I wanted to come back, I mean, to your comment about M&A. It's been part of the strategy with tuck-ins and you have the balance sheet strength, which is a strong cooper yourself and relatively muted valuations out there, broadly speaking. So just -- anything you can share about more transformational M&A as part of the strategy going forward?

Unknown Executive: Yes. Thanks, Eric. So we're looking at this based on our pillar approach, right, which at least in my mind, is very, very clear. What do we want to achieve in the hybrid niche? What do we want to achieve in CTAM, what do we want to achieve in workspace. And in each one of them, our M&A teams are constantly hunting for early-stage start-ups with foundation with technologies that we can take advantage of, but also larger opportunities. And I do think that one, our balance sheet; second, our discipline.

And third, the volatility in the market is going to create opportunities for us, and we are going to make those moves when it's strategically within what we want to do in the pillar. We believe that from an execution culture merge -- we have the ability to do it. When all these DUCs are lined up, that's when we're going to make those bigger moves.

Kip Meintzer: Next up is Roger Boyd followed by Matthew Hedberg.

Roger Boyd: I wanted to come back to emerging products. I think you mentioned 90% growth in CTEM, 40% growth in e-mail. Just any sense on where you are in terms of SASE growth. And to what extent is that business impacted or not impacted by some of the dynamics you're seeing across products and firewall right now?

Unknown Executive: Yes. Thank you. So look, SASE has become a fundamental part of the hybrid mesh network security, and we're making really big investments there. We have -- our R&D part is rushing to complete our feature list. We're now able to go upstream to the larger enterprises and creating some differentiated unique capabilities. In terms of the impact, no, I don't think it was impacted by the go-to-market change. I think the go-to-market change primarily affected our core firewall with people moving around. In fact, we're doubling down on our SASE sales capabilities. We joined forces with our CGS, our cloud network security sales force with SASE.

So in effect, that we now have a bigger team and more salespeople that can do both. And as this matures, the most important thing for us is to make sure that our general account managers can also be selling SASE and that's sort of the trajectory we're going into. But it is becoming more and more important around our hybrid mesh network security as organizations are moving. And in fact, I think adoption of AI is actually going to make this even more critical.

Kip Meintzer: All right. On our last questioner today is going to be Matthew Hedberg.

Matthew Hedberg: With all the advancements from some of the AI models and with [indiscernible], I mean it's got to represent an incredible challenge for not only customers, but even for some of your engineers. Like how -- what is the focus internally with keeping up with this rapid change from these frontier models? And like how do we as a secret community adapt to this?

Unknown Executive: Yes. Look, I think that's sort of the biggest question that we're all looking at, right? So when you think about it, we're witnessing democratization and industrialization from the attachment side. That's a huge shift. And our networks as they become identified, they really change the nature of the network because if you really want to harness agents, you got to give them the ability to get into different data sets and so that creates different pathways that we haven't seen before. This is not a new shift, but it's accelerating dramatically. And so look, we're preparing for this era for a long time.

It's not just about the single model announcement like [indiscernible] and I think we're executing intensively over the past year. I'll give you one example of what sets us apart we have the depth of the research. We have folks in Tel Aviv in Zurich, in San Francisco that are building this foundational model that we're constantly feeding in order to anticipate that future. And again, like I said before, this allows us not just for the latency and accuracy, but also the cost structure.

We started working in different verticals like banking, health, energy, with large design partners so that not only we try to anticipate what the attackers are doing, but they also tell us what they are doing in order to optimize their own organizations, irrelevant, not because of cyber, but because how they want to harness these models. And together, we're trying to understand how to security adopt them. One of the things that I'm very glad to see is that someone like Adam Eli is joining us. And then we're seeing like we're securing Microsoft Copilot. We're securing Gemini at Google. And so you're right. This is a fundamental change.

I think at the end of the day, on the one hand, we want to move really fast with AI adoption. On the other hand, we need to use our decades of hardening our environment. so that we can get ahead of the curve before exploits go public. In this case, I think that our IPS signature and WAF rules is best in the industry right now. And so I think it positions us well. I think there are going to be many more models. I think a lot of them are going to become publicly available. And so we're really just seeing the beginning of this on 0 days become 1 day.

The time to patch is going to need to accelerate dramatically. This is where we're bringing our CTEM capability. And again, when you put these things together, I really think that we have a proposition to customers that not just going to keep them more safe, but also allow them to do this AI adoption. Having said all that, look, there's a lot of unknown. I want to be very clear about that. Some of the things that we're seeing with these new models is truly a game changer.

And so what we're doing in order to try to stay ahead of it is not just to try to see what's happening in the wild, but also to get -- to try to simulate how the attackers are going to take advantage of these tools because the whole attack process, everybody is talking about vulnerabilities, but there are so many other things that we need to be aware of in order to stay ahead of this. In that sense, these are really accelerating time.

I think like we said before, this is a good time to be in this industry from a business perspective, but it's also one of the most important times to be in this industry. so that we can keep this digital world running.

Kip Meintzer: All right, guys, thank you very much for attending. I'm sure we'll see you guys throughout the quarter, and we'll be speaking to quite a few of you over the next few days. Have a great day, and we'll see you guys soon.

Unknown Executive: Bye-bye now. Thank you.

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