Check Point (CHKP) Q3 2026 Earnings Call Transcript

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DATE

Mon, Nov. 2, 2026

CALL PARTICIPANTS

• Investor Relations - Kip Meintzer
• Chief Executive Officer - Nadav Zafrir
• Chief Financial Officer - Roei Golan

TAKEAWAYS

• Total Revenue -- $670 million, representing a 1% decrease year over year driven by lower firewall appliance refresh activity.
• Subscription Revenue -- $339 million, growing 11% year over year due to demand for email security, AI, and exposure management solutions.
• Non-GAAP EPS -- $2.49 per diluted share, which was $0.01 above the midpoint of company projections.
• Adjusted Free Cash Flow -- $258 million, exceeding the midpoint of management projections by $8 million.
• Calculated Billings -- $636 million, a 5% decrease compared to last year due to a difficult year-over-year comparison involving deal slippages in the prior-year period.
• Remaining Performance Obligation -- $2.513 billion, reflecting 5% growth year over year.
• Deferred Revenues -- $1.992 billion, representing 6% growth year over year.
• Growth Technology ARR -- Growing over 38% year over year for email security, AI security, and Continuous Threat Exposure Management combined.
• Growth Technology Calculated Billings -- Increased over 47% during the third quarter.
• Email Security ARR -- Exceeded $200 million during the quarter, with management citing significant remaining market potential.
• Regional Revenue Mix -- 46% from EMEA, 41% from the Americas, and 13% from Asia Pacific.
• Non-GAAP Operating Income -- $251 million, resulting in an operating margin of 37.4%.
• Gross Margin -- 87%, which management stated was impacted by higher memory costs during the period.
• Currency Headwinds -- $30 million year to date, primarily reflecting the weakening of the U.S. dollar against the Israeli shekel.
• Share Repurchases -- 2.5 million shares purchased for $325 million, at an average price of $132 per share.
• Israeli R&D Grants -- $25 million in benefits received under the Israeli Incentive Program Law.
• Product Pricing Adjustments -- 12% to 20% increases on firewall products effective Oct. 4, 2026.
• Diluted Shares Outstanding -- 101.9 million shares, which management expects to decrease by 2 million shares next quarter through ongoing buybacks.
• Q4 Revenue Guidance -- $720 million to $770 million, representing flat growth year over year at the midpoint.
• Q4 Non-GAAP EPS Guidance -- $2.71 to $2.83 per share.
• FY 2026 Revenue Guidance -- $2.732 billion to $2.782 billion.
• FY 2026 Non-GAAP EPS Guidance -- $10.25 to $10.37 per share.
• 2027 Subscription Revenue Target -- Over $1.5 billion, supported by price increases and demand for new growth technologies.
• Incremental 2027 FX Headwind -- Estimated up to $50 million based on current exchange rates and less favorable hedging positions.
• Q4 Subscription Revenue Guidance -- $351 million to $362 million, reflecting a slight de-acceleration from lower attached firewall subscriptions.

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RISKS

• Zafrir stated, "I want to be clear that the pace of recovery is more gradual than we previously anticipated," regarding the timeline for product revenue stabilization.
• Golan noted that the company expects a "greater impact in the fourth quarter" from currency exchange rates compared to the third quarter.
• Golan stated, "The decrease in gross margin was explained due to higher memory costs," which the company expects to continue as a headwind.

SUMMARY

Check Point Software Technologies Ltd. (NASDAQ:CHKP) reported third-quarter revenue of $670 million, identifying the period as the expected trough for product revenue performance. Management attributed the 1% year-over-year revenue decrease to lower firewall appliance refresh activity, which also negatively impacted maintenance and professional services revenues. Despite these headwinds, subscription revenue grew 11% to $339 million, now accounting for 51% of total revenue. The company is implementing go-to-market changes and expanding its sales capacity to address a recovery that management indicated is progressing more gradually than initially forecast.

• Zafrir indicated that the company is expanding its focus beyond traditional network security to emphasize proactive threat prevention through agentic exposure validation.
• Zafrir noted that the company secured a significant eight-figure deal with a Fortune 200 energy company for network modernization and exposure management.
• Check Point is investing in "security for AI," including a new AI Network Firewall designed to provide visibility and control over AI-specific traffic.
• The company expanded its sales force by dozens of new sellers in the last three months and plans further hiring through the first quarter of 2027.
• The company launched a new marketing campaign, "It's Time AI Had a Checkpoint," targeting enterprise decision-makers as AI adoption increases.
• Zafrir stated the company is training its own small language foundational model based on the acquisition of Lakera to enhance its AI security capabilities.
• Management indicated that data sovereignty and the need for sovereign architectures are driving demand for private cloud and on-premise security deployments.

INDUSTRY GLOSSARY

• Agentic Security: Solutions that utilize autonomous agents to simulate real-world attacker behaviors to validate security postures and automate responses.
• ARR: Annual Recurring Revenue, a metric used to measure the value of subscription-based contracts on an annual basis.
• CTEM: Continuous Threat Exposure Management, a cybersecurity framework that focuses on the ongoing identification and mitigation of vulnerabilities.
• Neocloud: Specialized cloud providers focused on specific workloads, such as AI training or high-performance computing, distinct from traditional hyperscalers.
• PHP2Shell: A specific software vulnerability that allows attackers to execute commands on a server.
• RPO: Remaining Performance Obligation, representing the total future revenue under contract that has not yet been recognized.
• SASE: Secure Access Service Edge, a framework combining network security functions with wide-area networking capabilities.

Full Conference Call Transcript

Kip Meintzer: I'd like to remind everyone that this conference is being recorded and will be available for replay on our website at checkpoint.com. During the formal presentation, all participants are in a listen-only mode that will be followed by a Q&A session. During the presentation, Check Point's representatives may make forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Any forward-looking statements made speak only as of the date hereof, and Check Point Software undertakes no obligation to update publicly any forward-looking statements.

In our press release, which has been posted on our website, we present GAAP and non-GAAP results, along with a reconciliation of such results, as well as the reasons for our presentation of non-GAAP information. If you have any questions after the call, please feel free to contact investor relations by email at kip@checkpoint.com. Now I'd like to turn the call over to Nadav.

Nadav Zafrir: Thank you, Kip, and thank you all for joining us today. Let me start with the headline. In July, we said we expected the third quarter to mark the trough in product revenue, and we believe it did. Our third quarter results came in within range we expected. Total revenue was $670 million, pretty much at the midpoint of our projections. At the same time, subscription revenue grew 11% year-over-year, driven by the strong growth in our email, Continuous Threat Exposure Management, and AI technologies, while non-GAAP EPS and adjusted free cash flow finished above the midpoint of our projections.

The go-to-market changes that we've been talking about in the beginning of the year are now embedded, and we're making progress in sales capacity expansion that we outlined in July. Just as important, several of the leading indicators that we watch closely moved in the right direction during the quarter, including multiple wins of seven figures or even greater across critical infrastructure and regulated industries. As I said, we believe Q3 marked the bottom for revenue, and we expect sequential improvement beginning in the fourth quarter.

At the same time, I want to be clear that the pace of recovery is more gradual than we previously anticipated, and you'll see in our fourth quarter outlook, it reflects that, a measured recovery. On the product side, we continue to redefine network security for the AI era. In July, we launched our AI Network Firewall, bringing visibility and control specifically over AI traffic directly to the Check Point firewalls that our customers already rely on. Our new agentic security management platform can now translate business intent into policy, and specifically Zero Trust policies, across both Check Point and multi-vendor environments per our open platform vision.

Just a few days ago, we introduced our next-generation Maestro Hyperscale Orchestrator, which is designed to support neoclouds, telcos, and government, as well as large enterprise, to inspect AI traffic in the data center without compromising security or performance. While the recovery is taking a little bit longer than we initially expected, we believe we have turned the corner, and we expect product revenue to begin improving in the fourth quarter and beyond. I am also very excited about the continuing success of email, CTEM, our exposure management, and AI solutions. These solutions extend Check Point well beyond the network security, and as we bring them together, they continue to deliver a strong ARR growth in Q3.

Let me start with the exposure management, which connects directly to how we are redefining network security. As you all know, security teams are now buried in vulnerabilities, and the noise level is rising. Our agentic exposure validation checks each exposure, simulating real attackers in order to enable a preemptive security approach. In fact, this approach proved itself in the PHP2Shell vulnerability, and provided runtime prevention for our customers. In fact, we have already started to implement this vision, signing a significant eight-figure deal with Fortune 200 energy company to deliver solutions through both network modernization and exposure management.

At the same time, security for AI obviously remains top of mind for the CISOs who we work with, and we continue to grow rapidly, including a seven-figure deal with a leading global electronics manufacturer to secure their employee AI usage. In this case, we are talking about over 80,000 employees. In same, with our AI Defense Plane, we are securing not just employees, but applications, agents, and continue to work alongside OpenAI, Anthropic, and NVIDIA to enable our customers' AI transformation. Of course, securing your AI also means protecting the people who use it, all of us, and that starts in the inbox.

Phishing is now written by AI, and attackers can hide instructions in those emails that try to hijack the AI assistants that actually read them, these agents. We have to be able to stop both before they reach users or the AI workflows. Workforce security, anchored by our leadership in email security, actually remains a very strong growth engine. We recently crossed $200 million in ARR in email security, and we believe the market potential continues to be significant. That is the strength of our portfolio, a one company that can secure the network, manages the exposures, protects AI applications and agents, and defends the workforce. At the same time, we are continuing to strengthen our leadership.

Earlier this year, Adam Ely joined us to lead the AI pillar. He has now expanded his role to lead business operation as our new Chief Business Officer. As you know, Adam brings firsthand CISO experience and deep relationships across the security community. He will now own company-wide strategy and growth, working across product, go to market, corporate development, and strategic partnerships to turn customer and market needs into Check Point platforms, strategy, and execution. I also want to share that we launched a new marketing campaign, "It's Time AI Had a Checkpoint." We are bringing this message to enterprise decision makers in major markets with a very simple message.

As AI becomes a part of every business, it's Time AI Had a Checkpoint. To summarize, given the growing demand in our market, our improving execution, we're cautiously optimistic about the path ahead. During our upcoming Capital Markets Day at CPX in Las Vegas on February 10, we intend to share our long-term strategy. I hope you all can make it and join us. With that, I'll turn over to Roei to talk a little bit more about some of the financials. Roei, go ahead.

Kip Meintzer: Roei, you got to. There you go.

Roei Golan: Can you hear me?

Kip Meintzer: Yes.

Roei Golan: Great. Sorry. Thank you, Nadav, and thank you everyone for joining the call. As Nadav mentioned, our third quarter result was in line with our guidance. Our total revenues were $670 million at the midpoint of our guidance, representing a 1% decrease year-over-year, mainly due to a lower firewall appliances refresh activity as expected in this quarter. Our total subscription revenue remains strong, reaching $339 million, $1 million above the midpoint of our projection, with 11% growth year-over-year. Our adjusted free cash flow was $258 million, $8 million above the midpoint of our projections, while our non-GAAP EPS was $2.49 per diluted share, $0.01 above the midpoint of our projections.

Again, our revenues reached $670 million, and as I indicated, declined by 1%. This was mainly as a result of decline in our product revenues, primarily reflecting less refresh project of firewall appliances this quarter. This lower refresh project impacted negatively also our software updates and maintenance revenue and services revenues, due to lower attached support and less revenues for professional services. This was offset by another strong quarter of subscription revenues with 11% growth year-over-year. Based on the pipeline and our internal metrics that we see today, we believe Q3 revenues represent the trough, and we expect to see the beginning of the improvement starting in Q4.

We do expect, as Nadav mentioned, the recovery to be more gradual, but we are encouraged by the direction of the internal indicators we are seeing. Our deferred revenues as of the end of the quarter were $1.992 billion, 6% growth year-over-year. Our calculated billing totaled $636 million, represents 5% decrease compared to last year. It is important to remind you that Q3 last year benefited by approximately incremental five points from deal slippages from Q2 and early renewals from Q4 more than the usual, creating a tougher year-over-year comparison. Our remaining performance obligation grew by 5% and reached $2.513 billion.

Turning into subscription revenues, we continue to see strong performance there with 11% growth year-over-year, driven by strong demand for our growth technology. Subscription revenue today already represent 51% of our total revenues. This brings me to the key driver behind that performance. Email security, AI security, and CTEM continue to demonstrate strong momentum, with ARR growing by more than 38% year-over-year, and calculated billing growing by more than 47% this quarter. It is important to note that our email security ARR passed $200 million this quarter. These technologies are becoming an increasingly important part of our business and remain a key driver of our overall growth.

As for the next quarter, we do expect to see slightly de-acceleration in our subscription revenues due to the headwind from lower firewall appliances refresh, both in Q3 and in the beginning of Q4, that resulted lower attached firewall subscription. But we do expect the subscription growth to accelerate back in H1 2027, driven by our pricing that we recently announced of between 12%-20% on our firewall products, and also our continued strong demand for the new growth technology of AI, CTEM, and email, and expect our annual subscription next year in 2027 to cross the $1.5 billion.

Reviewing the P&L in this quarter, our revenues of $670 million were composed of 46% of them were revenues that came from EMEA, 41% of them came from America, and the remaining 13% came from Asia Pacific. Our gross profit decreased from $602 million to $585 million, representing a gross margin of 87%. The decrease in gross margin was explained due to higher memory costs. Our operating expenses, excluding R&D grants, increased by 12%, while on constant currency basis, our OPEX increased by 8%, and it was primarily as a result of increase in our workforce, in our investment in AI security, and the investment in sales and marketing.

Our third quarter results include approximately $25 million of benefit from R&D grants to be received under the Israeli Incentive Program Law, reflecting the associate impact and reflecting the associate impact in our financial results. Our operating expenses, net of R&D grants, were $334 million and increased by 4% year-over-year. Our non-GAAP operating income continues to be strong at $251 million or 37.4% operating margin. Turning into the FX, as we indicated last year, and also during the previous quarter, we expected that the currency environment will create a meaningful headwind in our operating expenses in 2026.

This has played out largely as we expected, with an impact of approximately $30 million year to date, primarily reflecting the weakening of the US dollar against the Israeli shekel. Based on the current exchange rate that we see today, we expect a greater impact in the fourth quarter, compared to what we had in Q3, and this is already reflecting in the guidance we will provide you for the fourth quarter.

When we are looking in 2027, if the currency environment remains broadly consistent what we see today, we expect an additional headwind on our operating expenses, as our hedging rates in 2027, mainly in the first half of the year, are less favorable than those secured for the same period in 2026. At the current exchange rate, we estimate that the incremental impact in our operating expense in 2027 could reach up to $50 million incremental in 2027. Our non-GAAP net income reached $254 million, and our non-GAAP EPS was $2.49, while GAAP net income reached $185 million, and GAAP EPS was $1.82.

Our number of fully diluted outstanding shares were 101.9 million shares as of the end of the quarter. While we continue to do our buyback, we expect the number of shares for the next quarter to decrease by approximately 2 million shares. Moving into our cash flow. Our adjusted free cash flow was strong this quarter and reached $258 million, in the upper end of the range we provided. Our adjusted free cash flow for the last 12 months reached $1,179 million. If we are looking on our share repurchases we have done, in Q3, we also continued our buyback program and purchased additional 2.5 million shares for $325 million at an average price of $132 per share.

In the last 12 months, we purchased a total of 9 million shares for approximately $1.4 billion. To summarize our financials this quarter, we continue to see strong demand for email security, CTEM, and AI security that driving the subscription revenues. On the other end, we did have a decline in our revenues, on our product revenues and maintenance revenues because of less firewall appliances bookings and revenues. We do expect that Q3, from here on, we are going to see improvement on that aspect. We finished this quarter with another strong adjusted free cash flow above the midpoint of our guidance. Moving into our guidance for the next quarter, and then the updated full year.

The guidance, the updated guidance, the guidance, sorry, for the fourth quarter is the range for the revenues is between $720 million to $770 million, while the midpoint is $745 million, representing a flat year-over-year. Our subscription revenues range is between $351 million-$362 million. Our non-GAAP EPS is expected to be between $2.71-$2.83, while our GAAP EPS is expected to be $0.70 less, while our adjusted free cash flow is expected to be between $260 million and $290 million. Moving into the annual updated guidance. This is how it looks. Our total revenues will be between $2.732 billion-$2.782 billion. Revenues subscription between $1.345 billion-$1.356 billion. Our non-GAAP EPS between $10.25-$10.37, while our GAAP EPS expected to be $2.74 less.

And our adjusted free cash flow expected to be between $1.136 billion to $1.166 billion. This is our guidance for the year, and we can move the questions to the questions, Kip.

Kip Meintzer: Yes. First up today for questions will be John DiFucci from Guggenheim Partners, followed by Joseph Gallo at Jefferies.

John DiFucci: Thank you. Thanks, Kip. And hi, Nadav and Roei.

Nadav Zafrir: Hey, John.

John DiFucci: Nadav, listen, you say, and Roei said, it's going to take a little longer to shift back to recovery here. Check Point's always been a strong technology company, and this is sort of a high-level question. It's great that your install base is really loyal here. But when we talk to people in the field, and we do a lot of that, so does everybody on this call.

Nadav Zafrir: Yeah.

John DiFucci: It really sounds like it's been hard for you guys to capture new customers. By the way, there's this sort of perception of Check Point as a really good technology company, but sort of a legacy technology company. I'm just like, how do you actually shake that perception? Because usually when we see that happen, and it's really rare in history, it requires massive change, like dramatic change. I know you're part of that, and bringing you in was really part of that. But is it enough what you're doing now, like hiring these new people? I get it, but is it enough? Do we just have to be patient with this? I'm sorry for the-

Nadav Zafrir: No, John, you're perfectly legit question. Obviously, this is something that I spend about 23 hours of my day planning and thinking about. I'll say the following. First of all, perception is perception, like you said. I do think it's changing, and I'll tell you why I'm optimistic. I would say two things. Number one is what we actually said about the Q3 numbers. If you look at our emerging technologies, right, so emails, CTEM, AI, these are exceptional technologies that are growing at almost 40% year over year across the board, representing a much larger part of our portfolio. But that's not the only thing. They also allow us to talk to new buyers, new people, and new logos.

It's very, very important because they're obviously, in my humble opinion, they really provide better security. So that's one thing. The second thing is we're no longer a firewall company, and we're no longer a network security company. We are looking at where the attackers are going, and I personally believe after 30 years in this industry that the current paradigm, we're seeing holes in the current paradigm, and I think it won't be long before many of the things that we were accustomed to will become less and less relevant. We have to move from looking at the rearview mirror, and we have to start anticipating attacks. This is what we call preemptive security.

We'll be talking at length about that strategy and that vision and how we're going to implement it in our February CPX event. I believe that with these emerging technologies that are becoming more and more prevalent and the new vision, as we start to implement the strategy, and some of it is already happening with customers, moving from a reactive state of mind to a proactive, preemptive state of mind is where the world needs to go. That's where I believe Check Point will create the new perception around it.

John DiFucci: Okay. We'll just be patient here a little bit more. We'll turn you on. Listen, Roei, I have a quick follow-up for you. You mentioned, and you gave us a little bit of a hint in the maintenance and support line, but in your line, you have that services line, and the services was weak. Sequentially, that line was down about 1%. You just look at maintenance and support sequentially, what did that do?

Roei Golan: If you're looking today on the decline that we had Q over Q, half of it came actually from professional services, half, I mean, in terms of dollars, and half of it came from the maintenance revenues.

John DiFucci: Okay.

Roei Golan: So that is the main. Again, we believe that is the trough also of Q3 in terms of maintenance, because that is coming because of the lower refresh that we did see in Q2, in Q3, and also with the guidance taken into account that we see still decline in the product revenue. So this is the impact of that we have less refresh and therefore less professional services. On the other end, as I mentioned also on my deck, that we did announce price increase for all our firewall products, including support, the attached support and subscription that will be effective, is effective from October 4.

That would have an impact mostly from Q1 because it is over time, so we will see. We do expect that support and the maintenance line item will be improved in the next few quarters.

John DiFucci: Okay. Thank you, Roei. Thank you, Nadav.

Kip Meintzer: Next up is Joseph Gallo from Jefferies, followed by Patrick Colville from Scotiabank.

Joseph Gallo: Hey, guys. Thanks for the question. I want to follow up a little bit on that last part. I think durability of subscription is extremely important to the story next year. Can subscription grow double digits in 2027? Nadav and Roei, I want both your takes, but 3Q subs decelerated one point, 4Q is implying another deceleration, current service billings declined, and you have pricing and inorganic benefits this year. Just help us think about the durability of subscription next year. Thank you.

Roei Golan: Just to the last comment that you have, actually, we didn't have inorganic benefit this year, so everything is organic, this year specifically. And pricing, actually, we did the price increase, which was mainly affected H1, but less H2, back then in July. I think definitely it's doable. I mean, we are looking on today on our business. I'll start and Nadav, you want to add on that. But when we are looking on our technologies, the SIEM, our AI security, which becoming more and more significant every quarter, and the email security that we mentioned that already crossed the $200 million ARR, these together are growing very nicely. They are growing above 38% in ARR.

Calculated billings this quarter, 47%. Very strong. It's not one quarter. We see sustainable growth in these three products. Even with the headwind that we have this year, specifically in Q2 and specifically in Q3 and also in Q4, on our subscription that's coming from the lower refresh that we had this year, even with that, we managed to go double digit. I think that we are starting to see also stabilization on the refresh, and we're going to start to see improvement also on the refresh that will also help the subscription next year.

On top of it, the price increase that I just mentioned, the pricing is on the firewall, that of course we are not going to benefit 100% of it, but historically, we managed to benefit from this price increase. That's something that altogether we believe that's doable and definitely can grow double digit also next year.

Nadav Zafrir: Yeah, to add to that, Joseph, the answer is yes. I will add what we've already spoken about, but it merits to reiterate. We made a major change in the beginning of the year. It's taken us a little time to settle things, but it's now embedded. As we said in July, we're also hiring more people at the front line, across the board, strategic accounts, major accounts, specialists, sales engineers, increasing our capacity substantially, so that when we go into 2027, we're set to start accelerating. That's one thing. The second thing is the market dynamic. The market dynamic is favorable, right?

I mean, there's never been a bigger need for proactive security, and I think what we're offering is extremely relevant, and I think it's on us to, on the execution part, to have better delivery. But we're confident that we're in the right direction, and the signs that we're seeing are good signs so far. That's why we confidently say that Q3 was a trough, and we're going to see some improvement in Q4, and going forward into 2027.

Joseph Gallo: Very helpful. Thank you very much.

Kip Meintzer: All right. Next up is Patrick Colville, followed by Todd Weller of Stephens Inc..

Patrick Colville: Thank you. Thanks, Kip, and Nadav and Roei, thank you for having me on. I guess I'm just going to ask a very quick tactical one and a more strategic one. The tactical question is, in terms of the price increase that, Roei, you kind of teased a few times, would you be able to provide some guardrails around quantifying that? Then, for you, Nadav, the more strategic questions around firewalls to protect AI data centers. We're going through this gigantic CapEx build-out. Is it going to accelerate next year in terms of the amount of AI compute coming online?

Just talk us through the opportunity that Check Point has against that, and is there stuff in the pipeline, or would that be incremental from here?

Roei Golan: I'll start with the question on the price increase. The full impact, I mean, if it will manage to benefit 100% of this price increase, it can be up to three points equal to three points to our growth, in total growth of revenues. That's again, if we manage to benefit 100% of this price increase. I can tell you that historically, we managed to benefit slightly less than half of it. But again, we are working very hard with the team, with everyone on the firewall aspect, mainly on the renewals, that we'll be able to monetize more of that. But that's to quantify that. Nadav, you can add on.

Nadav Zafrir: Yeah. Look, I think it's unprecedented, right? The investment in data centers, and specifically AI data centers, whether it's for training or for inference, is just mind-boggling. These data centers need security. In fact, that's some of the places where we believe this is going actually to be incremental starting 2027. We're making meaningful investments to make sure that we have the capacity and the security to enable the east-west traffic in some of these data centers, which is unprecedented. I think these abilities are going to be a tailwind for us. To your question, is it in the pipeline or incremental?

I think some of it is already in the pipeline, but as real revenue, we started to see it in 2026, and we hope to see this growing in 2027. By the way, it's not just the infrastructure that's being built. It's also the kind of traffic that moves east-west or north-south in these data centers. A lot of it is new kinds of traffic. A lot of it is encrypted. It takes real stateful capabilities. Some of it also has to do with data sovereignty, and the ability to run different kind of models, not just the traditional generalist models that we all talk about, but also open-weight models. It's a brand new world out there.

To the question before about the legacy part. I know that this is something that we need to deal with and shake it off, but remember that in actuality, the abilities that we've built over 30 years, in many ways, are becoming more relevant, not less.

It doesn't mean that we don't have to have a larger portfolio and better integration, better execution, better go-to-market, but the abilities that we have, the engineering capabilities that we have, the telemetry that we have from over 100,000 customers, the fact that we are training our own small language foundational model based on the acquisition that we did in Zurich, Lakera, if you remember, all these are coming together to where we believe there's never been a bigger need for what we can actually do. This gives us the ability to be cautiously optimistic about 2027.

Kip Meintzer: All right. Next up is Todd Weller, followed by Adam Tindle from Raymond James.

Todd Weller: Thanks for the question. Nadav, you mentioned kind of leading indicators giving you confidence. Could you expand on what you're seeing there? And then related to that, sales forecasting, I'm sure with all the go-to-market changes you've gone through, that it's been more challenging over the last few quarters. So maybe talk about how you're feeling about that and kind of confidence in the outlook.

Nadav Zafrir: Yeah. So on the indicators, it's a few, right? First of all, it's the funnel and the quality of the pipeline. That's number one. Second, as I mentioned in the script that we prepared for you today, it's these large deals that we're winning with some of our new technologies, such as AI and the integration of exposure management to modern network security. These are seven figure deals, eight figure deals, which are encouraging, and obviously, we need to do a lot more of it, and we need to get into new logos much faster. But we're seeing the first indicators of that happening.

Roei, I'll let you add anything if you want to add on the leading indicators, et cetera.

Roei Golan: No, I think you covered it. I think that definitely the funnel that we do see, the qualified funnel specifically for the next quarter, I think we feel more confident with what we see for the current quarter. Of course, like always, Q4, there is a lot of refresh activity and more product revenues. In the end, we do see the funnel for We feel confident with the funnel we see for Q4. I think the other leading indicators, again, it is more for long term, less for the Q4, but definitely, we talked with you three months ago about expanding our sales capacity.

I think since in the last three months, we expanded by dozens of new sellers that increased our sales capacity, and we have more of them that already signed and will join us in the next few months. We will be able to start with much higher sales capacity 2027 compared to what we had in the beginning of this year.

Nadav Zafrir: To add to that, Todd, to your question about the sales force, I would say three things that we are doing in 2026. Number one is leadership. So getting the right leaders in the right places. So, a new leader for America, a new CRO, and some other very consequential leadership positions that joined us this year. The second thing is the nature of how we go to market. Now that we are a portfolio which is much more diverse, as we are moving into our strategy of preemptive security and bringing together some of these technologies, it also takes some training for our existing people and bringing new people on board.

Finally, it is the underlying, I would say, structure and execution. As you already know, these changes slowed us down in 2026, especially until now. We think these changes are embedded, and again, are cautiously optimistic that we will now start harnessing some of the outcomes so that we can go back to growth.

Kip Meintzer: All right. Next up is Adam Tindle from Raymond James, followed by Shrenik Kothari from Baird.

Adam Tindle: Thanks, Kip. Just one for Roei and a follow-up for Nadav. I will ask them at the same time. I think, Roei, I caught in the script that you talked about annual subs over $1.5 billion for 2027. If so, I was wondering if you could break apart the drivers of that, whether that is maybe the maintenance portion versus the subs portion. It sounds like there is a pricing contribution to that as well. Just a little bit more granularity on that build, since it will be important for investors to hang onto. Nadav, on that pricing point, I just wanted to double-click on the decision and impact expected from price increases.

We are in a situation, obviously, hopefully troughing here, but product has been down double digits. It is an accelerating decline. Just a little uncommon to see a company raise price when demand is deteriorating so much. Would love to understand when that was announced and goes into effect, feedback, and fear that could lead to further deceleration. Thanks, guys.

Roei Golan: I will start with the subscription. We talked about the $1.5 billion subscription revenues in 2027. Again, that is coming from several items. First, driven by our product, by AI security, email security, and SIEM that keep growing very nicely and becoming more and more significant to our total business. They are already less today. Almost 30% of our total ARR, subscription ARR, and that is a long growing in a 40%. Of course, we take into account some benefit from the price increase that we did in Q4. Of course, we did not take into account 100% benefit.

This $1.5 billion, we take into account the trend that usually we got, that we have seen historically when we did the price increase. Second, back to stabilization, I think we already start to see it in Q4 stabilization in terms of, you asked Nadav about the product revenues, to start looking at better in stabilization and back to growth in product revenues. All of that together, put us in a position that we believe that we should cross the $1.5 billion subscription. I will touch base only on the one sentence on the pricing because you ask about, and then I will let Nadav.

I think, of course, it is a very good question to asking how come we are increasing pricing when we see this decline in our product revenues. In the end, before we deciding on increasing the pricing, it was back then, and we announced it back then in beginning of September, we increased our pricing. It was announced because, again, there are several factors here. One, I think the most important one is the memory cost. The memory cost is inflate, I mean, it is keep increasing. This year, we said that it is going to impact our margin by approximately one point. Next year, probably we are going to have a similar effect.

Again, it is too early to say because the memory costs are keep changing all the time. So definitely that is the first thing. Second, we looked on the market. We are looking that everyone right now, hardware, even if it is not security, everyone is increasing now because of the components. Everyone increasing. I mean, you have seen now competition. If it is Fortinet or Palo Alto, I think they both announced in the same timing that we announced the price increase. I think the market, the customer also understand. I can tell you that based, I am talking with our sales leaders, and the customers understand the price increase because of the memory cost.

I mean, everyone is paying more now because of what is going on with the memories. So that was the thought around it. Nadav, you want to add something about it?

Nadav Zafrir: Well, what I would say, Adam, is that we are doing this after carefully analyzing. So when you say it is accelerating, what we see now in Q3 and some of what we see in Q4 is obviously still a part of the funnel that we created in H1. Now we see the improvement. So we believe that not only we have reached the trough, but that we are reversing sort of the trend in our appliances, in our product revenue. This will already improve in Q4 and continue to improve throughout 2027.

Also take into consideration that the demand is high not only for the traditional enterprise data center, but just as we spoke a little bit before, when we look at where the market is going and when we look at where the attacks are coming from, where the dollars are going into infrastructure, a lot of these technologies that we've built in the last few years are very relevant as we augment them. Augmenting them also means that we're making huge investments.

I can tell you that in 2026 alone, the investment in security for AI and in AI for security in order to simplify everything that we deliver to our customers, because remember, the future is about anticipating, the future is about simplifying, and the future is about automating. There's a huge amount of investment that goes there, and we do expect to see some of that coming to fruition in 2027 with new capabilities, new products. Like we said, we just announced the new AI Network Firewall, our agentic security management platform that is maturing, is becoming much more relevant, and much more to come after that.

We believe that it's a very reasonable price increase that won't hurt the demand.

Kip Meintzer: All right. Next up is Shrenik Kothari, followed by Joshua Tilton.

Shrenik Kothari: Yeah. Thanks a lot for taking my question. Nadav, on a related note, with the recovery now taking longer, and you did touch upon it a little bit, but could these extensions and delays and the refreshes represent a more structural change? Just wanted to understand a little bit about how much of this sort of refresh backlog or extension is attributable to the budget constraints versus sort of broader architectural decisions for modernization. Since you mentioned about all these AI-centric products-

Nadav Zafrir: Yeah.

Shrenik Kothari: Just how much confidence do you have that this requirement, high inspection, will ultimately actuate modernization? Just a very quick follow-up on that front, the introduction of the firewall as a service, can you talk a little bit about that? Does it potentially reduce the upfront CapEx? Is that a factor and gives customers more flexibility in this modernization?

Nadav Zafrir: Yeah. No, so great question, Shrenik. I will tell you, it is a little bit ironic, but when you think about where network security is going, it is not the same trend that we have seen until about a year ago. Especially when you talk about AI-focused data centers and infrastructure, some of it is actually becoming, sort of changing the reverse trend that we have seen in the last few years. Again, it goes back to some of the customers around the globe that are focused on data sovereignty.

It is the fact that what goes on in these data centers is a little bit different, a lot more east-west traffic, especially when you are doing training for these new models, and we are seeing more and more demand for that. So, there are different trends that we are seeing. At the same time, obviously, we also need to think about the traditional modernization trajectory that we have seen over almost a decade, and that is why firewall as a service for sort of the traditional, and it sounds funny that I call it traditional, but it is now the traditional in the AI era.

Some of our more traditional enterprise customers would just rather consume their security as a service rather than having the hardware. But we are seeing two trends happening at the same time, right? So, I think they will even off each other, and obviously, we want to take advantage of both trends. So, that is why we are also launching this firewall as a service. But beyond that, I truly see that customers are looking for something more.

In a nutshell, it is about, when I speak to CISOs, and tomorrow we are off to Munich to have our Leaders Point, where we are going to have dozens and dozens of the leading CISOs in Europe with us for three days, and I am sure I will hear a lot more of that. Something that they are telling us more and more is, "Stop telling me about my problems. Fix them for me. And you need to do it in an automated way," because they are really drowning.

If you take only the last weekend with the new vulnerability that came out, the PHP2Shell, it means that instead of doing their actual work and making sure that they are safe, they need to sort of chase these vulnerabilities around the network, and we have to automate that, and we have to do it in a preemptive way. I am proud to say that when you look at our customers in the last weekend, they were protected before they needed to do anything. Instead of telling them, "Go and fix that," we told them, "There was a problem, but we already fixed it." That is where preemptive security is going.

Kip Meintzer: All right. Next up is Joshua Tilton from Wolfe Research, followed by Junaid Siddiqui from Truist.

Joshua Tilton: Hey, guys. Thanks for taking my question. A lot of moving pieces that I am hearing on the call, and I am just trying to understand all of them at once. It sounds like in the beginning, you opened up with the quarter was in line with expectations, but you are also trying to give us this message that the recovery that you are expecting is taking a little bit longer than you initially anticipated. So, I am trying to understand, what exactly changed if we just had an in-line quarter that the recovery is now taking a little bit longer?

Then maybe to put a finer point on Shrenik's question, is the recovery taking longer because you guys are just executing at a slower pace than initially anticipated, or is the recovery taking longer because priorities are changing in real time, and maybe the demand for firewalls is not as there as you initially thought it would be?

Nadav Zafrir: Well, I will start with the second question, and Roei, you can take the first. No, absolutely the latter. We actually see demand rising. Now, it is on us to be more competitive, to be out there, and to execute better. To your question, in July, we spoke about hiring a couple of hundred, even more, new salespeople. The process itself is taking a little bit longer than we wanted it to take, and then you have the onboarding. But we have hired dozens of new positions. We are continuing to hire dozens of new positions as we speak, and we will continue to do that into Q1 of 2027. From where I sit, it is absolutely the latter.

I think we know what our customers are looking for. I think we have more relevance in terms of the portfolio. Going forward, as we start implementing and making our vision and strategy come to fruition around the connectivity and going into preemptive security, I actually think that it will become easier for us to grow faster.

Roei Golan: To your question on the recovery, that will take longer than what we anticipated. I will remind you, Joshua, when we talked back then in the beginning of August when we announced our earnings, we did say that we do see very strong funnel, qualified funnel for Q4 back then when we announced earnings. When we are looking today, still we do see qualified funnel stronger than what we had last year, but the magnitude is slightly lower. Again, because of several factors. One, this funnel included a lot of significant large deals, that several of them being pushed to next year.

I can tell you that these are mostly with existing customers that working with us closely, we are engaging with them. They had a very significant refresh project that was supposed to be this year, and was decided to move it to next year. They renew their business with us. Everything is in line, but just in terms of doing the refresh, they decided to do so in 2027. That is how we see. Of course, also Q4 is a more back-end loaded quarter. There is a back-end loaded quarter which involve a lot of product bookings and revenues, and we took into account when we provided you the guidance.

Joshua Tilton: Makes sense. Thank you.

Kip Meintzer: All right. Next up is Junaid Siddiqui, followed by Saket Kalia.

Junaid Siddiqui: Great. Thanks, Kip. Nadav, you touched upon data sovereignty, and we are hearing increasing demand around sovereign architectures, particularly where customers want security and AI workloads to remain under their control. How meaningful is that becoming for Check Point across network security and SASE, and does this shift towards sovereign or hybrid deployments structurally favor your appliance and private cloud footprint?

Nadav Zafrir: I believe so. I think that, again, this is sort of the irony of the situation. There is still the traditional trajectory that we had seen over the last few years. AI, sovereignty around data, independence around using models is shifting. Also take into consideration that cost, the cost that is attached to using these amazing technology is also becoming a huge factor. I do think that the trend is changing. I do think that network security, modern network security does not necessarily mean what it meant a couple of years ago. It also means a sovereign data center. It also means running open-weight models locally, sometimes because of sovereignty, sometimes because of the need to remain independent.

Many times, for a lot of our customers, it is about the cost that comes with it. Traditionally, that is where we have a lot of strength. And now, as we are moving into the preemptive security and bringing exposure management and modern network security together, I think we can prove that they are very, very relevant. To add to that, we can do it in the cloud, but we can also implement a lot of this, and we are seeing more and more demand for that, which is kind of, again, ironic, but to do these things on-prem for different reasons. Sovereignty is one of them.

I do think this should be a growing demand, and I do think Check Point has a big play to play here in terms of what we already have and what we are building.

Junaid Siddiqui: Great. Thank you.

Kip Meintzer: All right. Next up, Saket Kalia, followed by Brad Zelnick.

Speaker 11: Okay, great. Hey, guys. Thanks for taking my question here. Roei, I would love to dig into just some of the moving parts as we think about margins for next year. I am not looking for guide here, but go with me for a second. Very helpful detail on FX, right? I think incremental $50 million in headwind from the shekel was something that we were all wondering. You will also presumably have a full year's impact of the sales investments next year as well. So, maybe beyond FX, how do you think about the impact of sales investments for next year, whether it is on expenses or margins?

Just as importantly, how do we think about maybe the returns that those investments could generate?

Roei Golan: Again, margins-wise, in terms of specifically margin, we are going to share with you, of course, in February when we are going to announce. Also, we are going to have a Capital Markets Day in Vegas, but we are going to announce our earnings close to this Capital Markets Day, so we are going to announce also our guidance for next year. You are right. In terms of, I mentioned the FX first. The FX has incremental impact. Again, according to the current FX rates, I mean, it keeps changing. Of course, we are hedging, we have a rolling hedge, but still, it can be changed, but it is right now around $50 million incremental for next year.

Looking at our margin next year, I can tell you that, again, we are going to have very high margins. We are going to have high margins. It is very tough to tell you now what margin it will be. It really depends also, let us be honest, on our top line, how we finish Q4, what is going to be the backlog for next year in terms of top line. In the end, the margins is also a result of the growth in the top line. All of these factors we will take into account when we will share with you the guidance for next year, and we will talk more about the margins on that aspect in February.

Nadav Zafrir: Just to add to that, Saket, take into consideration that the way we make our investments is also changing. Many of the things that we used to do in one way are now being automated, so we can also shift investments. One of the things that we want to do is become an AI-first company, one, because it is the right thing to do and change the culture and move ahead of the game, but also because we really, really need to be at the front line of using AI to understand the security implications and to understand what it means to have a real AI transformation with security for our customers. The blend is also changing. You are right.

On the sales side, the investments are going to take us to the full year next year, and we have to take that into consideration in our margins.

Speaker 11: Very helpful. Thanks, guys.

Kip Meintzer: All right. Next up is Brad Zelnick, followed by our last questioner, which will be Richard Poland from Wells Fargo.

Brad: Thanks very much for sneaking me in here, Kip. Following Saket's question about investments and Nadav, your comments about having flexibility, you have made nearly $300 million in acquisitions the last few quarters. You are on track to spend what looks like about $75 million or more in R&D versus last year, adjusting for tax credits. What is the timing and magnitude of the returns you expect on all this spending? Or maybe asked differently, what kind of growth does Check Point aspire to deliver, and when might we see all this investment get us there? I have one for Roei as well in follow-up.

Nadav Zafrir: The one thing that I will say is that we are looking at sustainable and gradual growth. The investments that we made this year, for example, we are going to double down on next year. Security for AI is one example of a capability or a product that we believe is almost existential for our customers, and hence for us. It goes into two buckets. The first one is a product that is security for AI. For example, the one we spoke about, the electronics company. To deploy AI security for over 80,000 employees with the best-in-class security is not easy. It takes a lot of investment. We expect that to grow as a pillar or a solution in itself.

At the same time, these capabilities become a part of everything else that we do. A lot of these investments are just there to keep up with what the attackers are doing. Again, going back to last weekend's vulnerability around the PHP2Shell, if we are going to stay in the reactive mode, I think we are going to lose. Remember, at the end of the day, it is a competition between offense and defense, and what we are seeing is a vulnerability apocalypse, if you like. The only way to stay ahead of that is to be able to thin the stacks and proactively, on the one hand, dramatically lower the probability that it will happen.

So when there is a vulnerability, when there is a new attack vector, and some of them are almost unimaginable, we already have the mitigation in place. Second is to hold the line to make sure that when the attack does come, we can block it in runtime, in real time. So a lot of these investments are going there. Obviously, the proof is in the pudding, and we are expecting to see some of that pudding in 2027 and beyond. To your question about acquisitions, it is also a strength, right?

The fact that we can continue to make these acquisitions, the fact that we are in the epicenter of the cyber global innovation is sort of an advantage that we constantly want to leverage.

Brad: That definitely makes sense. Maybe related to that, as we think about capital allocation, Roei, with comments for Q3 being the bottom, the stock is at somewhere around a 10% free cash flow yield. How do you and the board think about leaning in, maybe using the $4 billion cash balance and the $1 billion+ in free cash flow that you generate to buy back shares more aggressively? Thank you.

Roei Golan: That is something that we are assessing every quarter with the board. Actually, if we want, again, regarding our buyback, it is something that, again, to increase, decrease, to keep the same level. Right now, we are not doing any changes. We are continuing with the same level. Definitely, we have a very strong balance sheet with $4 billion in cash and more than $1 billion in free cash flow. So we have more flexibility, not only buyback, and of course, M&As, to do more M&As. But right now, we are continuing with the same levels on buyback. If we do any change, of course, we are going to announce it.

But right now, we are continuing with the same levels.

Brad: Awesome. Thank you both. Thank you, Kip.

Nadav Zafrir: Thank you, Brad.

Kip Meintzer: All right, guys. Our last caller, Richard Poland. Take it away.

Richard Poland: Thanks for squeezing me in, Kip. I guess one just kind of on the AI Network Firewall capabilities. When we think about how that kind of converts to the subscription line, I think the way we've understood it is that's a bit of an upsell motion. Is that captured in just kind of the three points that you alluded to on the pricing side, or would we consider that as kind of separate? And how do we think about some of the early traction on that side?

Roei Golan: I will take the first one, and then if you want to talk about Nadav, about the traction. It is not part of the three points. Actually, the AI Network Firewall is a different package, subscription package, that it is an upsell that can be sold to our customers. That is not part of the 3% increase. The 3% increase is the price increase. We are talking about specifically for firewall, these firewall subscription packages that we have today are not related to this AI Network Firewall, which is not part of that. Nadav, you want to touch base on the traction?

Nadav Zafrir: Yeah. I will say that there are a few things that we need to do in parallel, right? Number one is, and we have spoken about this extensively, and that is one of our still biggest challenges, is going out to the traditional network security and beyond with our full portfolio and going on offense to start getting a much bigger portion of new logos, right? That is one thing that we are focused on, and that is one of the reasons that we did the rehaul or the change to the way that our sales is structured. The second thing is more on the product side.

Here, to your point, some of these are relatively new capabilities that are built upon, obviously, a lot of what we already have, but a lot of them are different. For example, if you think about neoclouds that are competing with the traditional hyperscalers, as an example, they are offering different capabilities. It goes a little bit back sometimes to what we spoke about before, about sovereignty and running open-weight models, et cetera. It also means that you need to run different capabilities. I think in one of our talks, we spoke about the fact that in some cases, it actually means that we need to be a part of the hardware level.

That is some of the collaboration that we are doing with NVIDIA, because we are talking about massive amounts of data moving east-west, especially when you are talking about training, and different kinds of data that is moving. A lot of it is AI-related. A lot of it is encrypted. New capabilities are something that we need to build for network security, but way beyond that. That is what we are focused on.

Kip Meintzer: All right, guys. Thank you very much. It was great. We'll look forward to seeing you all through the quarter. All right. Thank you.

Roei Golan: Thank you.

Nadav Zafrir: Thanks, guys.

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