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Check Point Software Technologies Ltd  (NASDAQ:CHKP)
Q3 2018 Earnings Conference Call
Oct. 24, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Check Point Software Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kip Meintzer, Head of Global Investor Relations. Thank you. You may begin.

Kip E. Meintzer -- Head of Global Investor Relations

Thank you. I'd like to thank all of you for joining us today to discuss Check Point's third quarter 2018 financial results. Joining me today, as always, on the call are Gil Shwed, Founder and CEO; along with our CFO & COO, Tal Payne.

As a reminder, this call is webcast live on our website and is recorded for replay. To access the live webcast and replay information, please visit the company's website at checkpoint.com. For your convenience, the conference call replay will be made available through October 31st. If you'd like to reach us after the call, please contact Investor Relations by email at kip@checkpoint.com.

Before we begin with management's presentation, I'd like to highlight the following. During the course of the presentation, Check Point representatives may make certain forward-looking statements. These forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 include, but are not limited to, statements related to Check Point's expectations regarding business, financial performance and customers, the introduction of new products and programs and the success of those products and programs, the environment for security threats and trends in the market, our strategy and focus areas, demand for our solutions, our expectations regarding the acquisition of Dome9 and its impact on our business and financial outlook, our business and financial outlook including our guidance for Q4 2018.

Because these statements pertain to future events, they are subject to various risks and uncertainties. Actual results could differ materially from Check Point's current expectations and beliefs. Factors that could cause or contribute to such differences are contained in Check Point's earnings press release issued today October 24, 2018, which is available on our website and other factors and risks, including those discussed in Check Point's annual report on Form 20-F for the year ended December 31st, 2017, which is on file with the Securities and Exchange Commission.

Check Point assumes no obligation to update information concerning its expectations or beliefs except as required by law. 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.

Now, it's my pleasure to turn the call over to Tal Payne for a review of the financial results.

Tal Payne -- Chief Financial Officer and Chief Operating Officer

Thank you, Kip. Good morning and good afternoon to everyone joining us on the call today. I'm pleased to begin the review of the third quarter. Revenues for the third quarter increased by 4% year-over-year to $471 million, and our non-GAAP EPS grew by 6% to $1.38, both toward the high end of our guidance.

Before I proceed further into the numbers, let me remind you that our GAAP financial results include stock-based compensation charges, amortization of acquired intangible assets and acquisition-related expenses, as well as the related tax effects. Keep in mind that, as applicable, non-GAAP information is presented excluding these items.

Now, let's take a look at the financial highlights for the quarter. Products and Security Subscription revenues were $257 million. Our Security Subscription revenues continue to be strong with 13% growth year-over-year, reaching $136 million. Our Software Update and Maintenance revenues increased to $213 million, representing 4% growth year-over-year. Deferred revenues as of September 30, 2018 reached $1,148,000,000, a growth of $112 million or 11% over September 30, 2017.

Revenue distribution by geography for the quarter was as follows; 47% of revenues came from Americas; 37% of revenues came from Europe; and the remaining 16% came from Asia-Pacific, Japan, Middle East and Africa regions.

From a deal size perspective, this quarter we had 58 customers with transactions over $1 million. This quarter, similar to last quarter, the total value of these transactions increased significantly. Non-GAAP operating margin for the quarter were 53%, similar to the previous quarter. We continue to invest in our sales force and marketing efforts. The full effect of this will be reflected naturally in the next quarters.

Effective non-GAAP tax rate for this quarter was around 18%. Our Q4 tax rate is expected to be lower at 10% to 12%, related mainly to expiration of tax provisions at the end of the year.

GAAP net income for the third quarter of 2018 was $198 million or $1.25 per diluted share, an increase of 7% from the third quarter of 2017. Non-GAAP net income for the quarter was $219 million or $1.38 per diluted share, an increase of 6% from the third quarter of 2017, and toward the top end of our guidance.

As the share price increase significantly during the quarter, the number of options included in the diluted outstanding shares increased. Our cash balance continue to increase, reaching $4,072,000,000 as of September 30. Operating cash flow was $249 million. Collection from customers continues to be strong. Our cash payments increased, in line with our continued investments in sales and marketing.

In July 2018, we approved an increase of our buyback program to $2 billion and with quarterly amount that may vary, but will not exceed $325 million. During the quarter, we purchased 2.6 million shares for $300 million, at an average price of $113.

Now let's turn the call over for Gil for his comments.

Gil Shwed -- Founder and CEO

Thank you Tal and hello everyone joining us today. In the first quarter, we continue to see results that are better than our projections. Overall, this is the second quarter we've seen improved trending in execution by our sales force. We continue to focus on further improvements to the sales organization and we'll continue to invest as we move forward.

At the end of July, we made important change in the leadership of our sales organization and appointed Dan Yerushalmi to be Chief Customer Officer. Dan has been not only a tremendous sales leader in his past, but also a CIO of a major banks in his last position, making his experience very relevant to C-level interaction.

We continue to execute on our major initiatives, primarily around the Infinity architecture. A recurring trend in the feedback we hear from our customers is that Infinity represents a truly differentiated approach to security. Infinity accomplishes this by consolidating security and providing a universal platform, encompassing the network, mobile and across the Cloud with a focus on the prevention of cyber-attacks, rather than merely detecting them after the fact.

The pipeline for Infinity deals continues to build. During the quarter, we closed some nice deals in a variety of industries, from mid-sized law firms and not-for-profit organization, all the way up to some of the world's largest financial institutions. We've continued to build the breadth and depth of the Infinity platform.

This quarter, we extended our mobile security offerings, introducing advanced threat prevention capabilities to mobile devices, with the launch of SandBlast Mobile 3.0. This makes our product unique by preventing mobile phishing attack on all apps, prevents browsing to malicious sites, and blocks infected devices from leaking sensitive data to botnets or accessing corporate data.

On the Cloud front, we just went GA last quarter and launched our CloudGuard SaaS security solution to address security needs of software-as-a-service Cloud applications such as Office 365, Salesforce and ServiceNow. There is an entire industry of solution for SaaS Security called CASB, where the focus is mainly on detecting the use of such Cloud application and a little bit on user identification.

CloudGuard SaaS is much more than it CASB. It focuses on actually preventing malicious access, blocking malicious content within SaaS application, while also providing transparent and reliable user identification. We already have more than a 100 enterprises that have begun to utilize CloudGuard SaaS.

Today, we announced the further expansion of for Cloud Security offering with the acquisition of Dome9. The acquisition bolsters our Infinity platform by extending the breadth of our Cloud Security offering. One of the key challenges in public Cloud environment is to ensure the enforcement of corporate security policies across all elements of the Cloud infrastructure.

Dome9 addresses exactly that challenge. It enforces the corporate security policies and manages all Cloud assets accordingly. It makes certain that all Cloud servers are protected. It verifies that Cloud apps have the right security settings and manage the native Cloud security features of AWS, Azure and the Google Cloud. It does so while providing compliance with security best practices and company-specific guidelines.

These technologies also provide a broader market potential for us, with the ability to address non-Check Point environments by leveraging these technologies as the Cloud service, without the need for any on-premise software or hardware.

Dome9 aligns with our strategy to drive prevention and protection across the network, mobile and Cloud environment. Check Point is known for our management capabilities and Dome9 enable us to extend our superior management capabilities further into a Cloud-centric environment. The combination of Dome9 together with our CloudGuard IaaS and SandBlast product families will enable us to expand our Cloud Security capabilities and provide multiple layers of security to Cloud environment.

This will be accomplished with server automation and scaling tools that are critical in the Cloud. We evaluated many other technologies in this space and found Dome9 to be the most comprehensive. The one that delivers on the Check Point principle on enforcing security and providing true threat prevention rather than just detection and reporting like many of the other products we evaluated.

The acquisition closed today, while we don't disclose the full terms of the transaction, the main effect you're going to see in our financial results in the next quarter will be in cash consideration of approximately $175 million that will be part of our Q4 cash flow. It will not have a material effect on revenues and will reduce our non-GAAP EPS by approximately $0.02 to $0.04 a quarter; and our GAAP EPS by approximately $0.07.

Now, we would like to shares our fourth quarter projection. Overall, the third quarter produced good results. I do believe that our growth potential is higher than what we have seen in the past few quarters and we will continue to work on making that happen. You know my regular caveat, the future is always hard to predict, there are many -- there may be an upside, and obviously the potential for downside.

With that in mind, here are the fourth quarter projections that include the effect of the acquisition. We expect revenues between $500 million and $528 million; non-GAAP EPS in the range of $1.56 to $1.67; GAAP EPS is expected to be approximately $0.20 lower than that.

Now we'd like to open the call for your insightful question and feedback on our strategy. Thank you.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question is from Ben (ph) Zelnick with Credit Suisse. Please proceed with your question.

Brad A. Zelnick -- Credit Suisse -- Analyst

Thanks, very much. Brad Zelnick, Credit Suisse. Congratulations guys on a nice quarter. It's good to see billings growth back in the business and returning to market levels and congrats on Dome9. Gil, on Dome9, can you just talk a bit about why now. And as you think about integrating the offering into your management console, do you envision that this is going to be something seamless a year from now that we won't even notice it was a separate entity, and what does that take? And then, I've got a follow-up for Tal. Thanks.

Gil Shwed -- Founder and CEO

So, first I think now is a very good time to invest in the Cloud and use of Cloud application is getting higher and higher. I don't know if it's getting to mainstream, but definitely almost every enterprise in the world is expanding to the Cloud, and when they do that, they also tighten up security, and I think security is becoming more important to them. We've been working and looking at Dome9 for a long time, so this is not something that happened overnight, and that's something that we've been doing for quite a long time.

I think the Dome9 capabilities are far better than anything else in the marketplace. We're the only company in this space to have active protection, network security, threat detection, and better capability in compliance, in multi-Cloud environment and everything else we've seen. So we're very happy to be working with them.

We've passed on several other companies that we look along the -- a long time, and I think we are very fortunate that we've been able to pull this deal through. And hopefully we will be able to integrate it quite quickly. All the Dome9 employees are now Check Point, are now part of Check Point. The deal is closed so we can -- we are ready to act right now, and it will probably take us a couple of months to integrate all the different departments, and all the different -- and all the employees and provide the true Infinity cyber protection for Gen V attacks and strengthening the Cloud, which I think is more and more important.

Brad A. Zelnick -- Credit Suisse -- Analyst

Thanks Gil. And just Tal, and following-up on the financial impact. Is -- I trust it's all subscription revenue, can you just confirm for us where these annual subscriptions paid in advance. Does it flow through to the balance sheet or just directly to the income statement on a consumption basis, and is it fair to say that the business was doing roughly $25 million run rate, and anything else that you can tell us that appreciate the impact would be great?

Tal Payne -- Chief Financial Officer and Chief Operating Officer

No, the run rate is not $25 million, is less than $10 million, just to clarify. That's why we said it's immaterial. So you won't see any impact that is relevant from the revenue perspective in our size of company. So that's one comment. And the effect that we talked about is relevant mainly as a result of expenses. We continue to invest in the company as well, it's very exciting area. As for the numbers, the range that we talked about is $0.02 to $0.04 on a non-GAAP, and about $0.07 on the GAAP. And it is--

Brad A. Zelnick -- Credit Suisse -- Analyst

Got it. And the $0.02 to $0.04 -- that's helpful. And Tal, $0.02 to $0.04 I mean, were they burning that much cash or do you intend to invest that much more in integrating the business?

Tal Payne -- Chief Financial Officer and Chief Operating Officer

No, they have over 100 employees. They are spending cash, and it's an area that we would probably plan to expand as well.

Brad A. Zelnick -- Credit Suisse -- Analyst

Awesome, thanks so much for taking my questions.

Operator

Our next question is from Michael Turits with Raymond James. Please proceed.

Michael Turits -- Raymond James -- Analyst

First, Gil and Tal, can you talk about Dan Yerushalmi and what -- any changes might be in the strategic direction for what he'll be doing around sales. How he will be improving, and again obviously that's a change.

And then I'll just throw out my second question too. There are a lot of things taking place at a macro level in the world, obviously. To any extent you feel like you can look out into 2019, talk about how tariffs might impact you and any impact that other macro trends might have on security spending right now; Dan, and then macro?

Gil Shwed -- Founder and CEO

Okay. So first, in terms of the sales strategy, I think our sales strategy is the right strategy and our strategy is not something that we change very often. I think the main challenges that we have or the main opportunities that we have, depending how we want to look at it, is execution. We are focused on new customers. We are focused on broader sale for our Infinity architecture, getting higher level in the C-level in the organization.

Dan is putting a lot of emphasis on better working with our partners to bringing the products to market. And I think all these things that have been part of our strategy will continue and hopefully we will do them in a better way. So I don't think that there is a huge change in strategy, it is -- I hope, that there's going to be a change in the execution of the strategy; second thing?

Tal Payne -- Chief Financial Officer and Chief Operating Officer

And the second part was relating to macro changes in what area, can you repeat the question?

Michael Turits -- Raymond James -- Analyst

Well, you just had bad semiconductor report tonight, people are concerned about tariffs. So in general, general macro concern about next year and potential impacts of that tariffs. How do you think that -- if it does, impact you guys specifically and any anything you could say about the impact on the security market?

Tal Payne -- Chief Financial Officer and Chief Operating Officer

So, when you talk about tariffs, it's nothing that we expect that will affect us. In the macroeconomics, I would just say the general changes that you're familiar with, with the tax regulations in Europe and the tax regulation in the US. We're still waiting for the regulation to come out during Q4 and based on that, we will see what do we believe is the effect on us.

Michael Turits -- Raymond James -- Analyst

Okay guys, thank you very much.

Operator

Our next question is from John DiFucci with Jefferies. Please proceed with your question.

John DiFucci -- Jefferies -- Analyst

Yes, I have a question for Gil and then a follow-up for Tal. Gil, for Dome9, I'm just trying to, in my mind anyway, figure out now what you have versus what you might need. I read something that Dome9, you didn't have some identity technology? Is there anything here that in the Cloud area that you would -- that you don't have that you'd have to partner with others or that you wouldn't go into -- normally you haven't gone into the identity space either?

Gil Shwed -- Founder and CEO

I think we're not going to be a provider of pure Identity software. We're going to connect that identity into making sure systems are locked and that's what we've been doing. By the way, we've started that also in CloudGuard SaaS, our solution for SaaS we were having and now a little bit more of that in Dome9, but that's not our focus. The main -- there are going to more areas in the Cloud that we will get into. The Cloud is a very broad environment and there is much more layers in specific areas which we can secure in both of our Gen V and next year, our 6th generation of security will also focus on that.

But Dome9 is not just the feature. Dome9, I think, is a platform that's very, very strategic to us, because it does know how to manage security and enforce security in very large and very complicated and very heterogeneous Cloud environment. And that's critical because the Cloud is not one entity that's simple to manage. Actually if you look at the AWS Cloud, there's probably around 300 different services.

And when you activate any service, you want to make sure that automatically the security is applied to web service, otherwise that service becomes unintentionally the back door to the company, to the enterprise data. And I think that's part of what Dome9 have, a lot of automation to automatically set security policies on the -- on all the Clouds automatic detection when things go wrong and automatic remediation, which is even more important, because think about that, if somebody, some operator tries to do some maintenance to a -- let's say a storage server on the Cloud.

If they leave something open, they go home; tomorrow morning, you might get an alert that you left your data opened. But if that's too late, during the night somebody might have sacked all your database. Somebody that's using Dome9 for example, automatically these permissions will be reset today to the locks permissions and whether you see the alert or not, it should be in a good state. So which is one example of what Dome9 can do with nobody else in that industry is doing right now.

John DiFucci -- Jefferies -- Analyst

Okay, thank you. And Tal, the results were better than we had been looking for anyway. And the subscription growth actually accelerated a little bit, about the same growth, but the product numbers are still coming down year-over-year. And I'm just curious, is that more to do with sort of a transition to within the sales, it's sort of a push more that the platform sales, the Infinity Total Protection type sales like the selling motion? Or is it just, you know customers are buying more subscription at this point? And ITP is exciting, but it's still really early.

Tal Payne -- Chief Financial Officer and Chief Operating Officer

So I would say, in general, when we look long-term, that it's obvious that the industry as an industry is moving to providing new products as a subscription. So, all the relevant product that we present, basically since 2010 in subscription mode or in additional layers, Cloud is subscription, Dome9 is. So it's clear that the new area, mobile is subscription and so on. So everything -- most of the new things are subscription. Having said that, product can and should be positive and that's what we're talking about, continued improvement on the execution of their fields.

John DiFucci -- Jefferies -- Analyst

Okay. So we should hope that -- or expect to start see product not only to be numbers but actually turn positive at some point?

Tal Payne -- Chief Financial Officer and Chief Operating Officer

That's our goal, definitely.

John DiFucci -- Jefferies -- Analyst

Okay. Okay, great. Thank you very much.

Operator

Our next question is from Andrew Nowinski with Piper Jaffray. Please proceed.

Andrew Nowinski -- Piper Jaffray -- Analyst

All right, thank you and congrats on another good quarter. Maybe just starting with the America's; growth was strong, I think up 8% this quarter, which I think you hinted at last quarter as well. Is that a reflection of share gains or is it a seasonal contribution from the Fed, US Fed or just an overall improvement in the market that drove that growth?

Tal Payne -- Chief Financial Officer and Chief Operating Officer

No, just remember that revenues and booking not always in the same timing right, so revenues is the recognition over a period. So it's not necessarily you have accounting movement in VSOE and so on. So in general you're right, we've seen America positive and the Europe positive and only had a few large deals in the previous quarter in terms of revenue recognition. So you see it's actually in there, I think a small negative. So it's not necessarily a mirror of the booking.

Gil Shwed -- Founder and CEO

I would say that I think we did have some slightly better metrics in the US and I'm very happy about that because we are focused on gaining share, on doing more things in the US but we are far from over. I think our potential on what we can and should do in the US should be much better than what we're doing and there is still a long road until we'll all be here and say we are getting everything that we need to from the US.

Andrew Nowinski -- Piper Jaffray -- Analyst

Okay, very good. And then just one quick question on -- your long term deferred looks like it went up a little bit this quarter and your duration went off -- also went up. Is that just a factor or is that attributable to the Infinity's sales plan as more customers move to that sales model?

Tal Payne -- Chief Financial Officer and Chief Operating Officer

Not necessarily, of course, Infinity have an effect in the long term, but it's not -- it's still not a big number that will affect it in that way. Remember the long term can be just the effect of a support or subscription contract designed for over a year and then the over a year portion, in case it was invoiced, then you see it in the deferred long term.

But also short-term was very healthy with the growth, if I recall, of about 9% year-over-year. So that was quite healthy as well. And remember also that some of the bookings you don't even see because this accumulates on invoice because some of the long-term deals, you issue an invoice only once a year, and that portion is not reflected in the deferred revenue.

Andrew Nowinski -- Piper Jaffray -- Analyst

Okay got it. Keep up the good work.

Operator

Our next question is from Daniel Ives with Wedbush Securities. Please proceed with you question.

Daniel Ives -- Wedbush Securities -- Analyst

Yes. Hey, how are you and congrats again. I just -- can you maybe just talk about Infinity, just in terms of what you're seeing in the field, in terms of how maybe the conversations are changing from kicking the tires back to deal flow. And I'll just stop there and then a follow-up question?

Gil Shwed -- Founder and CEO

I think first, Infinity does brace the conversation to not just product transaction, but how people actually think about security architecture. And in my mind, by the way, that's one of the key elements in building today's cyber security. Well it's not refreshing that product or adding another product is the overall thinking about how to prevent threat. And that gives us much better opportunity to present our vision and to challenge our customers and they challenge us about actually delivering that.

I think Infinity so far is generating a very nice pipeline. We're still closing only a small number of deals because it takes very long time for a company to make a decision about the long-term commitment and about change of an architecture. But we are seeing that change is starting to happen and as I've mentioned, it goes from mid-size -- last quarter we even had some small size, this quarter it's more mid-size, going all the way to very large corporations that are willing to subscribe to that and see the potential in that.

So I think long-term, it should have a very good effect both on our -- what we call Infinity sales, Infinity Total Protection, but also on the general dialogue and opening doors with customers that might lead to other products deals that expand our footprint within a customer environment.

Daniel Ives -- Wedbush Securities -- Analyst

Okay. And just lastly, how do you view the Cloud opportunity? I mean you're a veteran of security and you've seen all different phases and facets. How would you compare this, may be over the last decade, versus other opportunities that some bear fruit, others didn't in terms of this Cloud and how real this opportunity is and how Check Point is positioned? Thanks.

Gil Shwed -- Founder and CEO

I think first, predicting the future is always challenging. But I do think that the Cloud is more real than everything you've seen, simply because enterprises are truly -- I mean we see that unlike many trends in IT that some happen, some didn't happen, some remained very small, the Cloud is already substantial. Every company in the world is expressing interest in moving systems to the Cloud. There is a new generation of companies that's called born-to-Cloud that only have Cloud environment, and I think all of these are potential.

What will happen in five to ten years, it's really hard to predict. It's really hard to predict if Cloud sale will be a small percentage of the market but still relevant or the majority of the market. And I think we'll know that in 10 years and for us, meanwhile, I think it's a quite substantial opportunity to get into.

Daniel Ives -- Wedbush Securities -- Analyst

Thank you.

Operator

Our next question is from Ken Talanian with Evercore ISI. Please proceed.

Ken Talanian -- Evercore ISI -- Analyst

Hi, thanks for taking the question. So, I was wondering if you could give us a sense for how the deferred growth was driven between either subscription or maintenance? Just trying to get a sense for what's driving that uptick.

Tal Payne -- Chief Financial Officer and Chief Operating Officer

So naturally, that -- the deferred revenues, most of it's relating to, as you said, subscription and support. I would say both been healthy and pretty much in line with what you see in the P&L. We had a very good booking in subscription as well. So I would say nothing abnormal. They both grew and they grew nicely. Naturally, when you talk about double-digit growth, then subscription is the only one that can do that. Support is typically single-digit, low-single-digit. You can see it in the P&L, since it's a renewal of your installed base support. So majority of the growth is driven by subscription.

Ken Talanian -- Evercore ISI -- Analyst

Great. And I guess around the Infinity deals. Could you give us a sense for the kind of uplift you might be seeing in some of the initial deals versus the prior run rate for some of these customers?

Gil Shwed -- Founder and CEO

I think it's anything from 30% to 200% depending on the customer and depending on how big they were and how much we are getting into that in the future. But I think that's the range that we've seen. It's a wide range. But in general, it's a quite substantial increase per customer.

Tal Payne -- Chief Financial Officer and Chief Operating Officer

But remember, it depends on what the customer has to start with, right, so if it's a new customer, obviously or if it is an uplift. If it's a customer that had only, let's say, firewall and now we added the entire family, it will be a very significant increase. And if you already had before let's say NGTX and threat prevention and then threat extraction then the lift will be smaller.

Ken Talanian -- Evercore ISI -- Analyst

Great, thank you very much.

Operator

Our next question is from Gabriela Borges with Goldman Sachs. Please proceed.

Gabriela Borges -- Goldman Sachs -- Analyst

Thanks for taking my question. Tal, you commented last quarter on off balance sheet bookings activity being particularly strong. I know it's not something that you regularly comment on. So I wanted to ask a follow-up which is, how did that bookings activity compared this quarter versus last quarter for deals that may not necessarily show up in the balance sheet?

Tal Payne -- Chief Financial Officer and Chief Operating Officer

But again, we don't report it, but just -- it doesn't look like I'm avoiding. I can tell you it increased this quarter as well. But it's not an indication that I'm going to give, just because, remember it can be very lumpy and depends on large transactions that are coming in that can be multi-year. So -- well you can look at the deferred revenues; you can see the growth there. I think it's a reflection of the run rates which is better than just the fluctuations in the booking.

Gabriela Borges -- Goldman Sachs -- Analyst

That's helpful. And a question for Gil, if I may, earlier comment on how it does take time to close Infinity Total Protect deals because it requires a change of architecture with the customer. For your customers that are coming back to you and saying, thanks for presenting, it's really interesting, but we're not interested right now, we're going to buy on the old model. What are the reasons that they give you for that?

Gil Shwed -- Founder and CEO

I think I don't know if that's the typical discussion this year. The typical discussion, and for us, one of the challenges is actually how to go higher in the organization and to present to people that see the broader picture in that regard and that's the opportunity with Infinity. I don't see many cases (ph) that customers say, you know what we're not interested. They might say, you know this is a project for next year. We are right now not evaluating big changes, but this is good.

In general almost everything that we have with customer was, yes we're getting on and let start the process or continue the process or let's evaluate and let's see how it would make sense to us. But I think the real challenge for us is simply presenting it to enough customers. When I'm presenting the feedback what I'm getting from customers that say, this is revolutionary, this is -- this is all, by the way, feedback that I got from a group of customers that spent a week with us here last week.

A customer delegation like that and their feedback was it's fresh, it's new, nobody else is doing that, the focus on prevention is unique to you, which is all good feedbacks. It still doesn't -- but unfortunately, it's from a very small list of customers that we're actually presenting it and that's why saying that in terms of our execution we need to learn how to take it to more places, and then we need to translate that interest level and that acknowledgment on the strategy to actual deals.

Gabriela Borges -- Goldman Sachs -- Analyst

That's very helpful. Thank you.

Operator

Our next question is from Walter Pritchard with Citi. Please proceed.

Walter Pritchard -- Citi -- Analyst

Hi, thanks. Question for Gil, just on product revenue, I'm wondering if there's areas of the world or territories within the world that are doing consistently better than the down 8 or 6 that you've had the last couple of quarters and I'm wondering what might be different about those areas as leading indicators of how your product revenue could get better as we look into future quarters?

Gil Shwed -- Founder and CEO

First, I think it's very non-uniform. We have areas in the world or countries that are performing quite well for -- if I take eight quarters, the six out of eight, they show great metrics and they might have one quarter that's lagging behind and vice versa. So it's not that results -- all of it are uniform.

As I said, when I look at some of these territories, the main element is still the execution is focusing on new deals and on new customers. And I think that's one of the things we need to expand and do better. And our culture is how to approach more new customers and not just base our relationship about the existing customers and the existing relations with the existing customers.

Walter Pritchard -- Citi -- Analyst

And as a follow-up to that, do we -- I mean just from a feet on the street perspective, if I look at sort of where your peers are spending, it just seems like spending quite a bit more from a sales and marketing perspective. And I'm wondering do -- is there a notion that just more feet need to go on the street or is it inefficiency you're retargeting the folks that you already have in the organization? Thanks.

Gil Shwed -- Founder and CEO

I think it's both. I always believe that the way to work is work efficiently and work smart, and if you build the right engine, it will have amazing results, so my focus is on that. Still I think we're going to add more feet in the street because there is more potential and because that will allow us to access more opportunities in more segments. So we will do both, and I think we'll keep doing that in a responsible manner.

Walter Pritchard -- Citi -- Analyst

Great, thank you.

Operator

Our next question is from Philip Winslow with Wells Fargo. Please proceed.

Philip Winslow -- Wells Fargo Securities, LLC -- Analyst

Hey, thanks guys for taking my question. Just want to get some color on the pricing environment that you're seeing during the second half here, anything that you'd note, change wise, whether it'd be just from competitors on what's called the base product or really maybe the add-on subscriptions, just general color on sort of the competitive environment and pricing?

Gil Shwed -- Founder and CEO

I think the environment is quite competitive. There is price pressure. We have a few competitors that their focus is on low price and when they come to a deal, they -- the prices are going down. We have others that are focusing on other attributes. So the market remains competitive. It doesn't seem that it become more competitive in the last quarter, to put it in that perspective. Tal any--

Tal Payne -- Chief Financial Officer and Chief Operating Officer

No, see, you know typically when you're in a transaction that is large with many competition then you see -- many competitors and large bids, then you see more competition naturally. Remember that product discount is different from subscription, different from supporters. So it can vary; depends also on the mix on a specific order.

Philip Winslow -- Wells Fargo Securities, LLC -- Analyst

Got it. And then just one follow-up for Gil from a previous question about the Cloud, I mean, if you believe that the world is going to be hybrid going forward and that you're going to see workloads both on-premise and in the Cloud. Can you talk about just from a -- call it a policy and management and sort of like the operation side of security. What do you guys discuss about sort of having sort of a single pane across both Cloud and on-premise versus let's say using Check Point on-premise and then let's say just a native product and call it a Cloud vendor and having to maintain two policies. What is your thought process? What are you hearing from customers on that?

Gil Shwed -- Founder and CEO

Absolutely, that's an excellent question. So first I think customers are more and more aware. If I took two, three years back, customers didn't have -- their whole security thinking was very silo-ed. Customers and more and more understand that the role of the CISO needs to be on overall security policy management, on overall security policy enforcement and that's a new trend, again which happened in the last maybe one or two years, but something that is changing in the world.

In terms of managing the Cloud, you are absolutely right. There is a hybrid environment almost everywhere. Today, we do have that advantage that from our smart center console we can manage our CloudGuard IaaS and have uniform management of wherever your instance, is physical appliance or virtual security gateway in the Cloud, Dome9 addresses exactly that.

Dome9 is exactly getting to the point of how do I manage multi-Cloud. Our motivation here is to incorporate that into the Infinity architecture and give the customer a single pane of glass, but not just a single pane of glass, it's really the uniform thinking about I can know what's in the Cloud is very important, to know what are your assets, to know what's changing, to automatically provision sync (ph) and most importantly, to enforce that policy everywhere. And I think that's exactly the value of Dome9, and that's why we like them, and that's why it's worked for us, doing that kind of deal.

Philip Winslow -- Wells Fargo Securities, LLC -- Analyst

Great, thanks guys.

Operator

Our next question is from Sterling Auty with JP Morgan. Please proceed.

Sterling Auty -- JPMorgan -- Analyst

Yes, thanks. Hi guys. So clearly you saw a really good step-up in execution in North America. Well this is actually the first quarter that Europe has slowed down underneath the growth of North America. Anything in particular that maybe caused some deceleration in Europe?

Gil Shwed -- Founder and CEO

I think Tal indicated already that the revenues and the business trends that you're seeing underneath don't always correlate and Europe is actually doing quite fine and we're pretty happy with the performance of Europe at this point.

Sterling Auty -- JPMorgan -- Analyst

Okay. And then, Gil, one trend that we're obviously seeing is the number of vendors in security plays into EDR, the Endpoint Detection and Response and use of machine language to ingest a lot of data and then go out in either threat seek, threat hunt to protect their customers. I'm curious that now you're making with the Dome9 investment, is this another area that you think you're going to need to have a presence in, either through organic development or through acquisition?

Gil Shwed -- Founder and CEO

First, I think that we do have some presence in that our SandBlast agent for the endpoint does have many of these capabilities and does have amazing capabilities of EDR and I think the strategy on that looking forward is quite challenging, not because there's no technologies around and not because we don't have good capabilities. Actually there was just a test now and we rated very, very high; far better than many vendors, both traditional vendors and new vendor, in terms of our endpoint security capabilities and especially these new ones. We got -- I don't remember what was the score, but again it was one of the highest in the industry.

But the challenge for me strategically, and I'll share it openly, the end-point market itself is very fragmented. There are very large, well-established vendors. There are many tiny start-ups and there are even companies now in the middle in the hundreds of millions of dollars of revenues that are mid-size companies but are quite sizable in the high-tech world. And the question is how to play in that game? Can any vendor can just have an end point with good -- and get a real important market share in that?

And I think I do have few ideas. I won't share all the ideas. I'll share the challenge and the strategic thinking. In terms of ideas, yes we have a product and I think it's a great product and we can also acquire more technologies and there are few interesting technologies that's I've seen around. It's really unclear to me what's the right play in that market and what's the right way to provide that overall security? Currently, I must say, we're the only vendor that has everything connected and has the Cloud, the endpoint, the mobile, the Data Center, the network; all connected in one platform and we do have it now and we do have customers that are using it.

Sterling Auty -- JPMorgan -- Analyst

Thank you, Gil.

Operator

Our next question is from Jonathan Ho from William Blair. Please proceed.

Jonathan Ho -- William Blair & Company -- Analyst

Hi, good morning. I just wanted to maybe start out with the sales and marketing investments that you talked about. Can you maybe give us a sense of magnitude and maybe where you are making those investments in terms of what the sales force is asking for?

Gil Shwed -- Founder and CEO

I think the investments are quite uniform and around the world. I mean let's take an example; this quarter we had like 20 local conferences, what we call CPX. We have one big CPX -- not one, three big CPXs regional in European, in the Americas and in Asia at the beginning of the year we call it CPX360. Then we roll it into a local program of local conferences. This quarter we had like 20 of them and it is all around the world. This quarter was actually more focused on North America. But again, we had the huge one in Singapore and actually just this week we had a big one in Russia. So I mean, it is all over, and I think the potential is all over.

In terms of sales investment, again, the potential is all over the world. The potential -- there is a big potential, again, in the US. But I don't think that I can say if it was one area that is more important than the other. In marketing expense, there are spent on everything, on trade shows, on conferences and so one -- in sale, the biggest investments is simply headcount. That's the number one driving and that's, by the way, most of the spend that we have on sales and marketing.

Jonathan Ho -- William Blair & Company -- Analyst

Got it. And then just as a follow-up, can you talk a little bit about whether you're seeing an impact from SSL traffic increases, either drive people to purchase larger boxes or potentially on installed base renewals drive any type of upsell?

Gil Shwed -- Founder and CEO

Okay, that's an excellent one, and I think technically SSL is a very challenging thing because more traffic is moving toward the sale and we need to inspect --and we need to inspect that and that requires much more horsepower. So yes, we are seeing more demand for more performance and more computing power. By the way, we came last quarter with a new model called the 23900, the high-end model and that's exactly it's positioning. With more SSL traffic, you need more power to do more threat prevention and actually it's going quietly well in that regard.

I do believe, by the way, that the biggest differentiator is not just speeds. Our SSL, our new capabilities in our latest version of R80.20 on SSL are far better than the competition. I don't want to go into the technicalities right now, but everybody is claiming to have SSL inspection. We will show soon how can you -- how we are doing the checks in a much more rigid way and a much -- in a way that doesn't let anything go unlocked when, if you're a malware developer, you can easily developing an SSL malware that will bypass other company's SSL, simply because they say yes, we have an SSL, but it's easy to bypass their SSL security.

So these are things that were actually discussed in the last few weeks here internally that we can show the value of what we do. And by the way, I'm amazed in every technology review that I'm doing to our people that they're working on the right stuff, we're providing the right security, and sometimes I'm simply puzzled to see that a lot of the competition is very negligent on the level of security that they provided, and SSL was a perfect example from last week.

Jonathan Ho -- William Blair & Company -- Analyst

Thank you.

Operator

Our next question is from Erik Suppiger with JMP Securities. Please proceed.

Erik Suppiger -- JMP Securities -- Analyst

Yes. Two questions on Dome9. First off, I think Dome9 was used in a lot of environments where they were not using a third-party firewall, be it Check Point or anybody else. Is the strategy here to get into environments that are not using firewalls or is the strategy to leverage Dome9 to bring Check Point into those environments and integrate Check Point into the broader security profile? And then secondly, do you have any incentives to keep the management of Dome9, as part of the terms of the agreement?

Gil Shwed -- Founder and CEO

I'll start from the second one. It's easy, yes, and I think that -- by the way in all the acquisition, the recent acquisition that we've done we put incentives for management to stay and as far as I can say, they did stay. I mean, unlike what we see in the industry and what I've seen in our -- I mean, historical past, many years ago, here in the last few acquisitions that we've done the management stayed three, four years and it's working well; so, that's for the second part.

For the first part, I think you're right about the need for Dome9. I think that we are able to get into environments that haven't been using advanced security like our CloudGuard IaaS or other gateways. So Dome9 clearly lets us get into that environment and provide your management. If you're not a Check Point customer the value is there. If you're a Check Point customer, it's easy to see why you have tools to manage your network security right now you need to have similar tools for the Cloud. So Dome9 should be an easy decision to expand your control.

And once you have that, it's very easy to see with the visibility tools, but here I'm using, let's say Level 1 security I want to go through Level 5 and we can provide also the Level 5 or the Gen V Security with our advanced threat capabilities. But I think we need to start from securing the environment when the Cloud is getting and it is out of control in most enterprises today.

Erik Suppiger -- JMP Securities -- Analyst

Very good, thank you.

Operator

Our next question is from Fatima Boolani, Please proceed with your question.

Fatima Boolani -- UBS Equities -- Analyst

Good morning. Thank you for taking the questions. Tal, maybe to start with you, I wanted to follow up on your comments around product growth and your confidence about going forward this could and should stabilize and in fact grow i.e. beyond focusing your execution and continuing to improve your execution, are there fundamental aspects that you see that maybe we don't that is underpinning your confidence in the form of maybe better client shipments than we can see or a better refresh opportunity within your install base that we could see and a follow up for Gil if I may?

Tal Payne -- Chief Financial Officer and Chief Operating Officer

Yes. Actually I didn't say that, just to clarify. I said that when you look in the long run, then the more technologies you have that are subscription and virtual and Cloud and mobile, than actually we see less products. So I think in the long-term, there is a trend that is clear that everything moving to a -- majority is moving to subscription, even when you look at Infinity, then the more people will buy Infinity, the more portion of the deal is going to subscription and support and less on the product because the entire bundle has much more layers of service-orientated portions versus the appliances and the product.

So long-term actually I think it's not. Now we're talking in the short-term that once we continue and see the improvement, then you can start to see the improvement on the execution then I want to see also growth in the product. But long-run, it's -- I don't know whether the industry will go there.

Fatima Boolani -- UBS Equities -- Analyst

All right, fair enough. Gil, just as a segue, just off that point, as Check Point endeavors to become essentially a security-as-a-service provider with Infinity Total Protection. What implications does that have from how you manage and build out your infrastructure, because the onus of SLAs and delivery of the security service would be from you instead of the appliance that the customer would have to buy to enjoy the security subscriptions?

Gil Shwed -- Founder and CEO

So, some of the things we're doing and some of the future architectures that we'll be speaking about will be like that, where we provide more and more Cloud services. We have been doing that for quite few years on several areas, and we will expand that, like our sandboxing and threat emulation is done mostly on our Cloud and we've been doing it quite effectively. And I think that's an area that we are building and growing and learning, and so far, it's working well I believe that we're serving almost 7,000 customers today with security capabilities that we supply from the Cloud. Today it's a hybrid environment. Eventually some of this might become not-hybrid, but full Cloud. I think -- but for the foreseeable future, it will all be in hybrid environment in that regard.

Fatima Boolani -- UBS Equities -- Analyst

That's very helpful. Thank you.

Operator

Ladies and gentlemen, we have reached the end of our question and answer session. I would like to turn the floor back over to Management for closing remarks.

Kip E. Meintzer -- Head of Global Investor Relations

Thank you guys for joining us today. We'll be looking forward to seeing you during the quarter. And also, if you'd like to have a call back today, pop me an email and we'll get you in the queue. Thanks and have a great day. Bye, bye.

Operator

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

Duration: 54 minutes

Call participants:

Kip E. Meintzer -- Head of Global Investor Relations

Tal Payne -- Chief Financial Officer and Chief Operating Officer

Gil Shwed -- Founder and CEO

Brad A. Zelnick -- Credit Suisse -- Analyst

Michael Turits -- Raymond James -- Analyst

John DiFucci -- Jefferies -- Analyst

Andrew Nowinski -- Piper Jaffray -- Analyst

Daniel Ives -- Wedbush Securities -- Analyst

Ken Talanian -- Evercore ISI -- Analyst

Gabriela Borges -- Goldman Sachs -- Analyst

Walter Pritchard -- Citi -- Analyst

Philip Winslow -- Wells Fargo Securities, LLC -- Analyst

Sterling Auty -- JPMorgan -- Analyst

Jonathan Ho -- William Blair & Company -- Analyst

Erik Suppiger -- JMP Securities -- Analyst

Fatima Boolani -- UBS Equities -- Analyst

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