Check Point Software Technologies Ltd Q2 2026 Earnings Call

At Check Point dot 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, checkpoints representatives may make forward looking statements Forward looking statements generally relate to future events or future financial and 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 only as of the date hereof and Check Point Software undertakes no obligation to update publicly any forward looking statements except where required by law In our press release, which has been posted on our website, we present GAAP and non-GAAP results along with the reconciliation of such results, as well as 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 at Check Point dot com. Now, I'd like to turn the call over to Nadav Zafrir., and,, thank you all for joining us today. Our Q2 results, were in line with our expectations, and we continued to make tangible progress, strengthening our go to market organization.

We're actually encouraged by improving execution and a growing sales pipeline., we. Checked Q3 to mark the trough, followed by a stronger Q4. That supports second half performance. And we are maintaining our 2026 guidance as. As a next step. We. Are significantly expanding our sales capacity by hiring hundreds of additional salespeople. We've launched a focused hiring campaign reflecting our confidence in the long term growth opportunity. Over the past few weeks, I met with more than a thousand security leaders at Check Point Engage events in Chicago, Paris, and Singapore Their message is consistent and unmistakable. Our industry is at an inflection point AI and particularly the latest frontier model, is driving a collapse in scarcity of adversarial capabilities. This is democratizing and industrializing sophisticated cyber attacks and challenging many of the assumptions that have guided cyber security for decades. We cannot stop AI adoption, and we must prepare to defend against sophisticated attacks at unprecedented scale. This is the time for decisive action at Check Point. Securing our customers AI transformation means executing the fundamentals better than ever. While building the next generation of cybersecurity. And we must do it in parallel. The fundamentals start with prevention powered by a threat cloud, AI intelligence.

More than 100 AI agents and telemetry from millions of enforcement points. Prevention for security is in our DNA. But fundamentals alone are no longer enough. We must build security that operates at machine speed, learns continuously and evolves as AI evolves. And so today, I'm excited to introduce the industry's first AI network firewall. We believe AI has created a new class of network traffic, and it deserved a new class of firewall. The AI network firewall gives customers visibility, control, and security for prompts, agent actions and model interactions. The AI network firewall is a part of our AI defense plane. It's a full stack AI security platform continuously trained on our threat research and intelligence, and built to protect applications, users and agents from AI based attacks. With the release of the AI network, follow firewall. We're embedding the AI defense planes across networks, private and public cloud, and sassy giving network security teams control. They can put in place today beyond the. AI demand across our emerging technologies portfolio remains healthy Subscription revenue grew 12% year over year in Q2, and we continue to integrate the capabilities from our recent acquisitions across the platform, strengthening our competitive position and expanding the value we deliver to customers.

We're building. Momentum by expanding our go to market capacity and strengthening our product portfolio. The launch of our AI network firewall, combined with our AI defense play, reinforce the Check Point mission of securing our customers. AI transformation. We remain focused on disciplined execution, accelerating growth, and delivering long term value for our customers. Our partners, employees, and shareholders. And with that, I'll turn over the call to Rory to review the financials.

Thank you. Nadav. One moment. Great. So thank you. Nadav. And thank you, everyone for joining the call. As Nadav mentioned, the second quarter was as planned with 1% growth in revenues driven by 12% growth in subscription revenues. Our total revenues reached $674 million and were $1 million below the midpoint of our projection. As a result of lower product revenues. As a lower demand for firewall appliances. When we're looking on our subscription revenues, it reached $333 million, and we're at the midpoint of our projections. Our adjusted free cash flow reached $161 million. 1 million above the midpoint of our projection and represent 24% of our revenues. Our non-GAAP EPS was $2.55 per diluted share and exceeded our guidance and grew by 8% year over year. As mentioned, we had 1% growth in revenues, while our deferred revenues grew by 7% to $2,025,000,000. Our calculated billings total to $639 million, and was similar to last year, while our current calculated billings grew by 2% to $641 million. Our remaining performance obligations grew by 7% and reached $2.55 billion. Our current RPO reached $1.6 billion and presenting 4% increase compared to last year. As we indicated in the call back in May, we had we expected lower product revenues, mainly as a as a result of our disruption affected by the changes were made in the go to market organization.

Our product revenues declined by 14% in the second quarter. As we are looking on the second half of the year, we do expect to see similar trend in in the third quarter with our firewall appliances. While we do see significant improvement in our pipeline in the opportunities, in the qualified opportunities in Q4, as a. And we do expect to see a back to growth in product revenues in the in the fourth quarter. When we are. Looking on the subscription revenues continue to accelerate to 12% growth this quarter, driven by the strong demand for our emerging technologies as email security and system are. Continue to have strong demand. When I'm looking. When we are looking on the third quarter, we do expect slightly acceleration in our subscription revenues. As a result of as a result of large appliances deals that were, that were that were pushed from Q3 to Q4, and also an impact on our subscription line item. As indicated, our total. Business continue to be strong as we continue to experience strong demand for emerging product portfolio, which remains the primary driver for our revenues. Growth in the second quarter. If we're looking on the email security system, and AI security accumulated, they exceeded 40% growth in R e over here while.

The. Related billing from these products grew by 35% year over year. Looking. On our revenues by geographies. So our revenues from Europe, from MI and America were 44% each for. For the second quarter, while the remaining 12% came from Asia Pacific. Similar to what we had last year. When we are reviewing, we are looking on our P and L for this quarter. So our gross profit increased from 585 million to $588 million, representing a gross margin of 87%. The slight decrease in the gross margin was explained due to higher memory costs Our operating expenses, excluding R&D grants, increased by 13% while on constant currency basis, our operating expenses increased by 11%. Our Q2 results include approximately $28 million of benefit from R&D grants to be received from the Israeli government, and while we are looking on our operating expenses, net of R&D grants, where they were, the expenses were $328 million and increased by 5% year over year. The increase the net increase is primarily the result of increase in our workforce and as a result, in continuing investment in AI security and investment in our sales and marketing programs. And when. On the operating income, it continues to be strong at $260 million, or 39% operating margin.

Our non-GAAP net income increased by 1% and reached $264 million. While our GAAP net income reached $194 million in decreased by 4% year over year Our non-GAAP EPS grew by 8% and reached $2.55. 8%. As I said, growth year over year while our GAAP EPS. Was $1.87, a 2% increase year over. Our number of fully diluted outstanding shares for the for. For Q2 was one and 103.5 million shares. And while we continue to do our buyback, we expect the number of shares for the next quarter to decrease by approximately 1.5 million shares. Moving into our cash flow and cash positions, so our cash balances as of the end of the quarter was $4.2 billion. Cash and marketable securities and deposits. Our adjusted free cash flow reached $161 million as planned. In line with our projections. We also continue to do our buyback program in purchase approximately 2.5 million shares for $325 million this quarter, at an average price of $131 per share. During the. Quarter, the company announced also a $2 billion expansion of the company's share repurchase program. So we're going to continue to do this buyback. Next. And to some. Rise. So from one end, definitely strong demand continues. Strong demand for emerging technology led by email security and CTM.

And that's becoming more and more significant to our total business. On the other end, we did see as expected, lower demand for firewall appliances this quarter ., I mentioned we do expect similar trend to continue also in Q3, but definitely we do see significant improvement on the appliances business in Q4. And we do expect to be back to growth in Q4. In the product revenues. And we're going to move to the guidance, to the business outlook. So first, guiding the full year, we are not touching the full year guidance. We are maintaining the same guidance as we gave you back in May. In the last call. Looking on the Q3 outlook. So the total revenue range is between 600 and 50 5 to 685. Subscription revenue between 300 and 30 2 to 343. non-GAAP EPS between $2.43 to $2.53. While our adjusted and GAAP EPS is $0.70 less, and our adjusted free cash flow is expected to be between 200 and 30 5 to $265 million. It is important to note, as I mentioned in in in the earlier that we do see significant, the opportunities and deals that are being pushed from Q3 to Q4 that are expected to be pushed from Q3 to Q4 and therefore that have an effect, a negative impact, mainly on the appliances, appliances, revenues.

And as I said, we if I'm comparing to what we've seen in the pipeline for Q4 in May and now definitely we do see even stronger pipeline for Q4, definitely it's a more back and loaded deal. It's also as a reflection of what of the go to market disruption that we've done, but definitely, we do see a positive sign. First, of course, with the emerging products that continue to have a strong demand and also with the appliances and the firewall, we, we we see positive signs that we are seeing the end in Q3 in terms of the decline and going back to growth in Q4. Thank you. And we are moving to Q&A. Kip. Floor is yours. We can't hear you. Kip.

That'd be good. Probably most people appreciate that., as with always, please keep your question to one question for,, each. Time around.. Today to begin, we're going to have Joseph Gallo from Jefferies, followed by Patrick Colville from Scotiabank.

Hey guys, thanks for the question. It was great to hear about the investment in sales capacity. Can you just remind us what the normal cadence of sales ramp to productivity is? I'm just trying to understand better the confidence in a four Q rebound when hiring today would be more indicative of 2027 benefit.

Yeah.. Thanks, Joe. The latter. Right. So ,. The impact,, to sales is expected in Q1 and Q2 of 2027. So the, the guidance and what we're expecting for Q3 and Q4 does not take into consideration the ramp up, the ramp up., you know, obviously,, has its,, has its momentum, but it's going to take some time. However, it is very significant. You know, for us hiring hundreds of new frontline sellers is a major move ., I don't know if you've, seen it. I hope you have. We we have started an aggressive campaign. So it's,, it's not just the number, it's also the people that we're hiring., and the invigorating of our sales force across the globe., it's, it's really meaningful and it's a company wide effort., so what the guidance that we gave today does not take that into consideration. That is sort of preparing for a stronger 2027.

Thank you.

All right. Next up, Patrick Colville followed by John Dhiffushi.

Thank you. Kip., I guess I wanted to ask about kind of mythos preparedness and advanced AI preparedness., you know, a lot of excitement in the market around what advanced AI means for cyber ., you know, you kind of touched on this in your prepared remarks a little bit, but, you know, just, just vis a vis Check Point specifically, you know, are you seeing changes in buying patterns as a result of enterprises kind of. Concerned about the risks brought on by advanced AI models. And then I guess specifically. Like, like, where is that hitting the financial model? Is it that the firewall layer for Check Point, is it the Non-attached subs and any changes to sales cycles Yeah. Great question. So if you zoom out. Really,, the phenomena that we're seeing is very interesting. It's when you think about it from the attacker's perspective, you want to think about it from an ROI perspective. So the way we see it is from the, the attackers now have access to resources.. That they didn't have before. That's what we call the collapse of scarcity. They literally have access to what used to be very scarce resources. And that's sort of what leads into the democratization and industrialization.

So we're going to see more sophisticated attacks at a much higher cadence that is happening already. But we think it's going to accelerate within the next couple of years. So when you think about the security paradigm, that or the assumptions that we have around security, we're seeing signs that some of these assumptions and the current paradigm does not necessarily,, withstand the change that's coming, that's coming from the attackers. And that leads us to like an way to really a world between two paradigms. And so that's what I, what I mean when I say number one, going back to fundamentals, this is the proactive prevention first. That's our DNA. That's where we shine. That's what our customers expect from us. And we have to do everything that we have learned. Just much better, much faster, much more diligently. At the same time, in parallel, we have to look into the future. We have to. Imagine different possible futures, give them different probabilities and start simulating how the attackers are going to change. So, for example, I believe we believe that detection and response ,, are going to be much less relevant because we're going to have to go to automatic remediation at machine speed.

And so we're making massive investments. Last year, we, we,, we spoke about hiring hundreds of new individuals to build the next generation. Today we announced the launch of the first AI network firewall integrated into our AI defense plane. And there's a whole strategy around that. Now to your question about ,, the buyers perspective. I think that they realize that on the one hand, back to basics and at the same time, they're looking to what's next. So I'll give you a couple of examples. I think the continuous threat exposure management based on three acquisitions that we made, that is growing,, last quarter, we spoke about that growing at almost 100% is a part of that. Why? Because it gives you ,, the, the ability to understand what's coming at you. But also creating a real pathway to understand what the real, threats. Mean and automatically remediating that in an open platform approach. And that's why. CTM, for example, is having such success. At the same time, the reason I'm so excited about,, the AI network firewall is that it's also happening at the network level. And so customers that already have our,, firewall can now also take advantage of the network to,, to understand what their employees are doing, what agents are running,, and control that.

So I really think to summarize, it's, it's sort of a tale of two., of two cities. On the one hand, everything that we've learned, we must do better than we've ever done before. At the same time, we're creating the new technology, the new products, the new ,, and I think within the next couple of years, you'll see a new paradigm emerging ., so that's sort of the story of where we are right now. I think that in some way,, some of the frontier models may be hyped, but the phenomena is a phenomena cannot be overhyped., so we're seeing it in a very tactical level in the amount of vulnerabilities that are out there and how fast we need to patch them. And so that's what we're doing today. But as we move forward, we need to change that paradigm. And we're working on this in different,, in different buckets., the last one, is actually running these models on our own software to make sure that we can simulate, imagine and get ahead of the curve before attackers do it.

All right. Next up is John Dhiffushi, followed by Brian Essex.

Thanks, Kip. Nadav. I sort of have a high level question. I think. I mean, Check Point has always been a respected technology company and a thought leader in its field. Long before the term platforms came out. I remember your predecessor talking about the infinity Platform, and I know it became products too, but it was a platform. It was the first time we had heard about one company working to secure an enterprise from top to bottom. Even today, partners in the field acknowledge the strength of the technology at Check Point, but there seems to be a customer perception of the sort of dreaded word legacy. Even though you're installed, this really loyal and pretty much Check Point die hards, I guess. What is it? Other than hiring a lot of new go to market people that you think has to be done to change that perception? Because that's really important. That's hard. And is the issue really just not enough feet on the street?

No, I think it goes beyond that. Not enough feet on the street is one thing. And that's why,, we started this campaign. And now that and this is a second phase of the go to market changes that we announced last time. So now that we've stabilized, we're ready to add hundreds of new people based on the new model., in the, in the organization that,, or the reorg that we announced, I think second,, it's marketing, right? So,, we need to,, be louder ., I really believe that,, when it comes to this world that we're walking into,, this,, this world where on the one hand, security, real security, proactive prevention has never been more important. I think that's our DNA ., and I think we can provide real security based on the current paradigm. And at the same time., you know, the announcement of the first AI network firewall,, it's a big announcement., it's taking the, the firewall and preparing it for the AI era., but not as a standalone, to your point, but as a platform play. And this is where integrating the AI network firewall into the AI defense plane and having the ability to look at different choke points within the network, not just for observability,, but also for enforcement,, is a huge advancement.

And we are seeing the demand for our AI capabilities grow very, very fast. In fact, some of the hiring that we're doing across the globe is because we just can't get to enough customers fast enough with the high demand that we have, because this is a specialized field where you need people. On the specialists,, that can come in and, you know, do all the more technical stuff for our customers.. And when you bring all these things together., it makes us very optimistic about the future. One thing that I'll say about the platform. Yes, consolidation is important., but I think it needs to be an open platform, right. And so, and an open platform means that we acknowledge the fact that, number one, from a, from a, the approach should not be a monolithic approach, especially at the enterprise level., that's not going to lead to resilience. Number two. Whether we like it or not, a lot of our customers are going to be multi-vendor and we need to appreciate that and have their security front and center in our policy. And so with our unified management,, which I think is one of the strongest features that Check Point has,, within the next few months, we're going to offer our customers the ability to manage different products and different firewalls, even if there are fiercest, competitors, because at the end of the day, especially ,, in the mythos era,, we just don't have the time., you know, to take care of things one by one with an SLA of, of days and weeks.

We need to be able to see what's coming. We need to be able to understand what the real impact may be. We're using a AI to do that, to actually simulate the paths to the vulnerabilities., that we're seeing. And then we're moving. Into an automatic remediation capability, whether it's patching or virtual patching or segmenting or segregation within the network., so that at the end of the day, we can have this real proactive,, prevention first mentality. And at the same time starts with the new paradigm of autonomous remediation.

By the way, that makes a ton of sense. And it's truly unique that open platform to work with others. And it's in the customer's best interest. I think you got to have Roy loosen up that marketing budget a little more and go out there really loud. Had have Kip run the marketing because he's pretty loud. Yeah, yeah.

No, I totally agree. I totally agree and it's,, some of it is already happening. Some of it is work in progress., and I think we're starting to see the impact. We're starting to see that turn into the, into the funnel ., and as already said,, we're already seeing a very strong Q4 ahead of us.

Thank. You all right.

Thank you, John. Next up is Brian Essex with JP Morgan. Great. Thanks, Kip. And thanks.

For taking the question.. Nadav., I wanted to follow up on some of that commentary, particularly with regard to platform and your AI firewall., I think it's great to see the innovation on the platform. I think that's another thing that we've heard customers are really focused on is the rate of innovation ,, to kind of build that platform., would love to know, you know, what is your vision in terms of how you see the AI firewall technology stacking up with against what seems to be an emerging AI gateway market?, are you targeting platforms that, that span? I mean, I guess, are you thinking about the expanding the platform to span across broader observability tracing performance optimization, cost control features, which is one thing that I think CEOs are very focused on. Or do you intend to like stick towards more security and governance?, it seems like maybe some of your peers are looking at things more of a consolidated, broader observability and security platform, but would love to know what your focus is going forward.

Yeah. So I want to start by saying that,, we need some. I would say. Humility as we try