Check Point Software Technologies Ltd. (CHKP) Q3 2025 Earnings Call Transcript
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Overview
The company maintains strong guidance and confidence in meeting targets, with positive developments in subscription growth and strategic investments. The Q&A reveals management's optimism about future growth, despite some uncertainties like FX impacts. The reiteration of guidance and strategic focus on expanding enterprise customer base, along with no significant negative factors, supports a positive sentiment.
Key Financial Performance
Revenue Revenue grew by 7% to $678 million, exceeding the midpoint by $6 million. The growth was driven by strong demand across the portfolio.
Non-GAAP EPS Non-GAAP EPS reached $3.94 per diluted share, exceeding guidance. This includes a one-time tax benefit of $1.47 due to a tax settlement. Excluding the one-time benefit, EPS exceeded the midpoint of the projection by approximately $0.02.
Deferred Revenue Deferred revenues grew by 8% to $1.887 billion, driven by strong demand across the portfolio and geographies.
Calculated Billings Calculated billings totaled $672 million, reflecting a robust 20% growth year-over-year. This was driven by strong demand across the portfolio and geographies, with additional contributions from deals slipped from the previous quarter (3 points) and a large early renewal deal (2 points).
Current Calculated Billings Current calculated billings grew by 14% to $642 million.
Remaining Performance Obligation Remaining performance obligation grew by 9% to $2.4 billion.
Services Calculated Billings Services calculated billings grew by 21% compared to 7% last year, driven by products like Quantum Firewall, Harmony Email, and Harmony SASE.
Emerging Technology ARR Emerging technology ARR grew organically by more than 40% year-over-year, driven by products like Harmony SASE, Harmony Email and Collaboration, and External Risk Management.
Global Revenue Distribution America grew by 10% (42% of revenues), EMEA grew by 3% (45% of revenues), and APAC grew by 8% (13% of revenues).
Gross Profit Gross profit increased from $563 million to $602 million, representing a gross margin of 89%, similar to last year.
Operating Expenses Operating expenses increased by 11%, mainly due to continued organic investment and the impact of Cyberint and Veriti acquisitions.
Non-GAAP Operating Income Non-GAAP operating income was $282 million, with a 42% operating margin. The weaker U.S. dollar against the Israeli shekel negatively impacted the margin by approximately 1 point ($0.06).
Operating Cash Flow Operating cash flow was $241 million, including a $66 million one-time tax payment. Excluding this, operating cash flow grew by 23%.
Total Cash Total cash, marketable securities, and deposits amounted to $2.8 billion.
Share Repurchase $325 million worth of shares were repurchased at an average price of $198.
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Operating Highlights
Acquisition of Veriti: Integrated Veriti into exposure management organizations, expanded integrations across endpoint, firewall, and cloud providers, reaching over 100 deployments, and delivering automated remediation.
Acquisition of Lakera: Acquired Zurich-based AI native security leader Lakera to enhance AI security, protect large language models, and address emerging AI threats.
FedRAMP Authorization: Achieved FedRAMP authorization for the Infinity platform for government, positioning as a trusted partner for federal environments.
Global Revenue Growth: Double-digit growth in America (10%), EMEA (3%), and APAC (8%).
Revenue Growth: Revenue grew by 7% to $678 million, exceeding midpoint by $6 million.
Calculated Billings: Calculated billings totaled $672 million, reflecting 20% growth year-over-year.
Operating Cash Flow: Operating cash flow grew by 23%, excluding a one-time tax payment.
AI-Powered Security Platform: Building a full-stack AI-powered security platform to address AI adoption and threats.
Leadership Appointments: Appointed new leaders in sales and marketing to strengthen market presence and customer engagement.
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Risk or Challenges
Foreign Exchange Rate Impact: The weakening of the U.S. dollar against the Israeli shekel has negatively impacted the company's profit margins. Despite hedging efforts, this resulted in a 1-point margin reduction in Q3 and is expected to continue affecting margins in Q4 and beyond, potentially increasing annual expenses by $50-$60 million in 2026.
Acquisition Costs: The recent acquisition of Lakera will result in a 0.5-point margin headwind in Q4. Additionally, the company paid $160 million for land for a new campus in Israel, which could strain cash flow.
Heavy Hardware Dependency in Q4: Q4 is expected to be heavily back-end loaded with significant hardware refresh projects. This dependency on hardware could introduce variability and risk to revenue projections.
AI-Driven Threats: The rapid adoption of AI exposes the company to new cybersecurity threats, including prompt injections, data leakage, and model manipulation. Attackers leveraging AI could outpace the company's defensive measures.
Operational Costs: Operating expenses increased by 11% due to organic investments and recent acquisitions, which could pressure profitability.
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Guidance & Outlook
2025 Revenue Guidance: The midpoint for 2025 revenue guidance has been raised, reflecting confidence in the company's trajectory.
AI Security Platform Development: The company is building a comprehensive AI-powered security platform to address emerging AI threats and enable secure AI adoption. This includes securing employee usage of AI tools, protecting AI applications and agents, and strengthening model robustness.
Lakera Acquisition Impact: The acquisition of Lakera, an AI-native security leader, will result in a 0.5 point headwind for margins in Q4 2023.
Q4 2023 Revenue Guidance: Revenue is projected to range between $724 million and $764 million, representing 6% growth at the midpoint.
Q4 2023 Non-GAAP EPS Guidance: Non-GAAP EPS is expected to range between $2.70 and $2.80.
2023 Annual Revenue Guidance: The updated revenue guidance for 2023 is between $2.705 billion and $2.745 billion, with a midpoint of $2.725 billion, representing 6% growth year-over-year.
2023 Annual Non-GAAP EPS Guidance: Non-GAAP EPS for 2023 is expected to range between $11.22 and $11.32.
Q4 2023 Margin Headwinds: Margins in Q4 2023 will face a 1-point headwind due to foreign exchange rates and a 0.5-point headwind from the Lakera acquisition.
2026 Expense Projections: Based on current foreign exchange rates, annual expenses in 2026 could increase by approximately $50 million to $60 million.
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Shareholder Return Plan
Share Repurchase: We continue to do our buyback, and we purchased our share repurchased approximately $325 million of shares at an average price of $198.
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Key Q&A
Q:Could you talk about your underlying assumptions for subscription and recurring revenue in your guide and how much visibility you have?
A:We expect double-digit growth in subscription with slight improvement into Q3. We anticipate an acceleration of subscription revenues compared to this quarter and similar growth rates as Q3. For appliances, we expect year-over-year growth around mid-single digits.
Q:What is the sustainability of the 20% billings growth, and is this a new chapter for Check Point under Nadav's leadership?
A:It is a new trajectory. Q3 was strong, with some pullovers and pull-ins. We believe growth is achievable, and our 2026 guidance will reflect this. However, we will proceed prudently, making investments at the right places and times.
Q:Is there a change in strategy with the go-to-market leadership changes, and how should we think about 4Q billings?
A:The new strategy will take effect in Q1 2026. Q4 will continue under current leadership. We aim to focus on upselling to large enterprises and acquiring new enterprise customers, especially in the Americas.
Q:How long does it take for billing growth to translate to revenue growth, and where would it be recorded?
A:Billing growth is allocated between services and products. Services billing growth (21% this quarter) will reflect in revenues over the next 4 quarters. Product billing is recognized immediately upon delivery.
Q:Can you talk about the contribution from SASE and the upcoming roadmap for that product area?
A:SASE saw over 40% ARR growth in Q3. It is part of our hybrid mesh connectivity fabric. We have made substantial investments in SASE, hiring hundreds of new talents. We aim to upscale and deploy to larger enterprises by 2026.
Q:How much do you need to fill in from an M&A perspective for AI security, and how much more M&A do you expect in the next 12-18 months?
A:We are looking at acquisition targets to address future phases of AI security. While nothing is imminent, more acquisitions are expected as we aim to secure our customers' evolving needs.
Q:Is there anything different or changing on Harmony Email in terms of competitive dynamics, and how should we think about its growth in CY '26 versus CY '25?
A:We do not see a deceleration and hope for acceleration. Harmony Email is a replacement business with superior AI capabilities. We are expanding the suite to include endpoint, browser, and mobile security.
Q:What is the impact of FX and M&A on CY '26 margins?
A:FX is expected to be a $50-60 million headwind. M&A impacts, such as the Lakera acquisition, are still being assessed, but we expect more revenues from these investments.
Q:Can you elaborate on the Hybrid Mesh value proposition and where you are winning the most in these hybrid conversations?
A:Our advantage lies in large-scale, complex hybrid environments. We see opportunities in private or quasi-private data centers for AI usage, where performance and speed are critical.
Q:How would you characterize the spending environment in 3Q compared to the first half, and what are your expectations for Q4?
A:3Q showed better execution compared to the challenging first half. Q4 includes large hardware deals and depends on budget flush, which is uncertain. Guidance does not assume significant budget flush.
Q:How much of an impact did changes to sales incentives have, and what are the trends in ARR growth?
A:Changes to sales incentives, including paying on ARR growth, have positively impacted renewals and discounts. ARR growth trends are being monitored, and future disclosure of ARR as a metric is being considered.
Q:What is the impact of the federal government shutdown on your business, and what are your investments in the federal side?
A:The current business impact is minimal. We are investing in FedRAMP'ing products and focusing on selling to federal customers, as this is a significant potential market.
Q:How does the hardware refresh cycle impact your business, and what should we expect for 2026?
A:The refresh cycle is a significant part of our business. We are in the middle of the cycle and see opportunities for refresh and cross-selling in the next 12 months.
Q:Are there opportunities for rationalization in the current portfolio, and how are customers prepared for AI security investments?
A:We focus on being a podium player and partner with others for specific capabilities. The AI security market is in its early stages, with substantial growth expected in 2027.
Q:How do you view the current subscription licensing model, and is there room for a usage-based model?
A:We are considering a consumption-based model, especially for areas like workspace, but currently focus on ensuring customer satisfaction and product usage.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the impact of M&A on CY '26 margins, stating that plans are still being developed. Additionally, they did not provide a clear answer on whether ARR will be disclosed as a key metric in the future.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI adoption
AI defender
AI future
AI priority
AI research
AI security
Agentic capability
Americas Sales
Avi effort
Brett Theiss
CEO Check
Chief Marketing
Cisco Palo
FedRAMP authorization
Fortune enterprise
Lakera Fortune
Lakera Zurich
Lakera defense
Marketing Officer
Officer brand
Palo sale
Point chapter
President Technical
Relations Results
Results reconciliation
Veriti
agent
attacker
cybersecurity
expertise
phase
platform philosophy
position
principle
role
security platform
stack
vision
CHKP Transcript
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The earnings call summary and Q&A indicate strong financial performance with increased EBITDA margins, cash flow, and new signings. The company has raised its revenue guidance and is optimistic about future opportunities, especially in cybersecurity and Canadian military sectors. Despite some margin headwinds, the overall outlook is positive, with strategic growth initiatives and cost optimization efforts contributing to optimism. Analyst sentiment is generally positive, with expectations of continued growth, leading to a positive stock price movement prediction.
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The earnings call reveals strong financial metrics, such as a 41% operating margin and 24% growth in operating cash flow. However, guidance indicates margin headwinds due to acquisitions and FX, and management avoided specifics on acquisition impacts and memory pricing. The raised 2025 revenue guidance is a positive factor, but uncertainties in product revenue and unclear management responses temper enthusiasm. The stock price is likely to remain stable, reflecting a balanced view of positive growth prospects and existing challenges.
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