Image source: The Motley Fool.

DATE

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

CALL PARTICIPANTS

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

TAKEAWAYS

• Total Revenue -- $674 million, reflecting 1% growth year over year driven by subscription strength despite lower demand for firewall appliances.
• Subscription Revenue -- $333 million, representing 12% growth compared to the prior year due to demand for emerging technologies like email security.
• Non-GAAP EPS -- $2.55, an 8% increase year over year that exceeded management's guidance ranges.
• GAAP EPS -- $1.87, representing a 2% increase versus the same period last year.
• Product Revenue -- Declined 14% year over year, reflecting go-to-market organizational disruption and lower demand for firewall appliances.
• Deferred Revenue -- $2.025 billion, a 7% increase year over year as of June 30, 2026.
• Remaining Performance Obligation (RPO) -- $2.55 billion, representing 7% growth compared to the prior year.
• Current RPO -- $1.6 billion, reflecting 4% growth year over year.
• Calculated Billing -- $639 million, remaining flat versus the same quarter in the previous year.
• Current Calculated Billing -- $641 million, an increase of 2% year over year.
• Emerging Technologies Performance -- ARR for email security, CTEM, and AI security grew 40% year over year, while calculated billing for these products rose 35%.
• Adjusted Free Cash Flow -- $161 million, representing 24% of total revenue for the second quarter.
• Gross Profit -- $588 million, reflecting an 87% gross margin which was slightly impacted by higher memory costs.
• Operating Expenses -- $328 million (net of R&D grants), a 5% increase year over year due to workforce expansion and AI security investments.
• Operating Income -- $260 million, resulting in a 39% operating margin for the quarter.
• Cash and Marketable Securities -- $4.2 billion in total cash, marketable securities, and deposits as of June 30, 2026.
• Share Repurchases -- 2.5 million shares repurchased for $325 million at an average price of $131 per share during the quarter.
• Repurchase Authorization -- Management announced a $2 billion expansion of the company's share repurchase program.
• Geographic Revenue Mix -- EMEA and the Americas each contributed 44% of total revenue, while Asia Pacific accounted for 12%.
• Sales Headcount Expansion -- Management launched a campaign to hire 300 additional frontline sellers to expand go-to-market capacity.
• Q3 Revenue Guidance -- Expected to range between $665 million to $685 million.
• Q3 Subscription Revenue Guidance -- Targeted between $332 million to $343 million.
• Q3 Non-GAAP EPS Guidance -- Estimated between $2.43 to $2.53.
• Q3 Adjusted Free Cash Flow Guidance -- Projected between $235 million to $265 million.
• Full Year 2026 Guidance -- Management reaffirmed its previous financial outlook provided in May 2026.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

• Golan stated, "Our product revenues declined by 14% in the second quarter," citing lower demand for firewall appliances and go-to-market disruption.
• Golan noted, "The slight decrease in the gross margin was explained due to higher memory costs," which impacted the hardware side of the business.
• Golan indicated, "We do expect slight deacceleration in our subscription revenues as a result of large appliances deals that were pushed from Q3 to Q4."

SUMMARY

Management reported that the second quarter met internal expectations while identifying the third quarter as a performance trough before an expected recovery in the final quarter of the year. The company reaffirmed its full-year 2026 guidance and introduced a new AI Network Firewall to address a shift in adversarial capabilities driven by frontier AI models. Strategic efforts include a significant expansion of the go-to-market organization, with plans to add hundreds of sales personnel to capture long-term growth. Executives stated that while product revenues declined due to hardware demand trends and organizational changes, emerging technology subscriptions continue to drive the top line.

• CEO Zafrir introduced the industry's first AI Network Firewall, stating, "We believe AI has created a new class of network traffic and it deserves a new class of firewall."
• Zafrir noted that AI is driving a "collapse in scarcity of adversarial capabilities," which necessitates a shift toward machine-speed autonomous remediation rather than traditional detection.
• Management confirmed that the current hiring of 300 sellers will not impact 2026 results, with Zafrir noting, "The impact to sales is expected in Q1 and Q2 of 2027."
• The company is shifting toward an open platform approach, with Zafrir stating that within a few months, Check Point will allow customers to manage "different firewalls, even if they are our fiercest competitors."
• To address low-latency requirements in AI data centers, Zafrir noted the company is "working with NVIDIA to embed our firewall capability within the GPU level."
• CFO Golan attributed the back-ended nature of the 2026 outlook to "large deals that were renewed... last year, we build annually and this year, we build quarterly," which impacted reported billings.

INDUSTRY GLOSSARY

• CTEM (Continuous Threat Exposure Management): A cybersecurity framework that continuously surfaces and prioritizes threats based on an organization's specific attack surface.
• SASE (Secure Access Service Edge): A network architecture that combines VPN and SD-WAN capabilities with cloud-native security functions.
• RPO (Remaining Performance Obligation): The sum of deferred revenue and a company's backlog, representing the total amount of contracted revenue yet to be recognized.
• ARR (Annualized Recurring Revenue): A metric used to predict the annual value of a company's subscription-based contracts.
• Infinity Architecture: Check Point's unified security framework designed to protect networks, cloud, and mobile environments against advanced threats.
• Zero-Day Exploit: A cyber attack that targets a software vulnerability that is unknown to the vendor and for which no patch exists.

Full Conference Call Transcript

Kip Meintzer: Greetings, and welcome to the Check Point Software's 2026 Second Quarter Financial Results Video Conference. I'm Kip E. Meintzer, Global Head of Investor Relations. And joining me today are Chief Executive Officer, Nadav Zafrir; and our Chief Financial Officer, Roei Golan. Before we begin, I'd like to remind everyone that this conference is being recorded and will be available for replay on our website at checkpoint.com. [Operator Instructions] During the presentation, Check Point's representatives may make forward-looking statements. Forward-looking statements can 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, 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 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 e-mail at [email protected]. Now I'd like to turn the call over to Nadav Zafrir.

Nadav Zafrir: Okay. 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 expect Q3 to mark the trough, followed by a stronger Q4 that supports second half performance, and we are maintaining our 2026 guidance. 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 1,000 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 cybersecurity 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 our Threat Cloud AI intelligence, more than 100 AI agents, and telemetry from millions of enforcement points. Prevention first 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 deserves 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 Firewall, we're embedding the AI Defense planes across networks, private, and public cloud, and SASE, giving network security teams control they can put in place today. Beyond 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 plane, reinforce Check Point's 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 Roei to review the financials.

Roei Golan: 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 we're $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 represents 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 billion. Our calculated billing totaled to $639 million and was similar to last year, while our current calculated billing grew by 2% to $641 million. Our Remaining Performance Obligation grew by 7% and reached $2.55 billion. Our current RPO reached $1.6 billion and representing 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 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 trends 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, and we do expect to see back to growth in product revenues in the fourth quarter. When we are looking on the subscription revenues, it continued to accelerate to 12% growth this quarter, driven by the strong demand for our emerging technologies, as email security and CTEM continue to have strong demand.

When we are looking on the third quarter, we do expect slight deacceleration in our subscription revenues as a result of large appliances deals that were pushed from Q3 to Q4 and have also an impact on our subscription line item. As indicated, our total subscription business continued to be strong as we continue to experience strong demand for our emerging product portfolio, which remains the primary driver for our revenues growth. In the second quarter, if we're looking on the e-mail security, CTEM, and AI security, accumulated they exceeded 40% growth in ARR year-over-year, while the calculated billing from these products grew by 35% year-over-year. Looking on our revenues by geographies.

So our revenues from EMEA and America were 44% each, 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&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 a 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.

When we are looking on our operating expenses, net of R&D grants, they were -- the expenses were $328 million and increased by 5% year-over-year. The increase -- the net increase is primarily as a result of increase in our workforce and as a result in continuing investment in AI security and investment in our sales and marketing programs. When looking 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 and 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-year. Our number of fully diluted outstanding shares for Q2 was 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 position. 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 and in line with our projections.

We also continue to do our buyback program and purchased 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 share repurchase program. So we're going to continue to do this buyback. To summarize, so from one end, definitely strong demand -- continued strong demand for emerging technology led by e-mail security and CTEM, 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. As 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. We're going to move to the guidance to the business outlook. So first, regarding 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 $665 million to $685 million, subscription revenue between $332 million to $343 million, non-GAAP EPS between $2.43 to $2.53, while our adjusted -- and the GAAP EPS is $0.70 less.

And our adjusted free cash flow is expected to be between $235 million to $265 million. It is important to note, as I mentioned in the call earlier that we do see significant DAF opportunities and deals that are being pushed from Q3 to -- that are expecting to be pushed from Q3 to Q4, and therefore, that has an effect -- have a negative impact mainly on our 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-ended loaded deal.

It's also is a reflection of what -- of the go-to-market disrupting 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 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, the floor is yours.

Kip Meintzer: [Operator Instructions] Today, to begin, we're going to have Joseph Gallo from Jefferies, followed by Patrick Colville from Scotiabank.

Joseph Gallo: 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 4Q rebound when hiring today would be more indicative of 2027's benefit.

Nadav Zafrir: The latter, right? So -- the impact to sales is expected in Q1 and Q2 of 2027. So the guidance and what we're expecting for Q3 and Q4 does not take into consideration the ramp-up. The ramp-up obviously has its momentum, but it's going to take some time. However, it is very significant. 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 have started an aggressive campaign. So 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 really meaningful and it's a company-wide effort.

So the guidance that we gave today does not take that into consideration. That is sort of preparing for a stronger 2027.

Kip Meintzer: All right. Next up is Patrick Colville, followed by John DiFucci.

Patrick Edwin Colville: I guess I wanted to ask about kind of Mythos preparedness and advanced AI preparedness. There's all excitement in the market around what advanced AI means for cybersecurity. You kind of touched on this in your prepared remarks a little bit. But just vis-a-vis Check Point specifically, 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 where is that hitting the financial model? Is it the firewall layer for Check Point? Is it the non-attach subs? And any changes to sales cycles?

Nadav Zafrir: 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 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 from the attackers. And that leads us to like an Kuhnian way, to really a world between true paradigms. And so that's 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 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 buyer's 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 3 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 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 CTEM, 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 understand what their employees are doing, what agents are running and control that. So I really think to summarize, it's sort of a tale 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 the 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 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.

Kip Meintzer: Next up is John DiFucci, followed by Brian Essex.

John DiFucci: 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 platformization 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 your installed base is really loyal and pretty much Check Point diehards.

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?

Nadav Zafrir: No, I think it goes beyond that. Not enough feet on the street is one thing, and that's why we started this campaign. 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 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 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, the announcement of the first AI network firewall. It's a big announcement. It's taking the firewall and preparing it for the AI era, but not as a stand-alone to your point, but as a platform play. And this is where integrating the AI network firewall into the AI defense plan. 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 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, #1, from the approach should not be a monolithic approach, especially at the enterprise level, that's not going to lead to resilience. #2, 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 they are our fiercest competitors because at the end of the day, especially in the Mythos era, we just don't have the time to take care of things one by one with an SLA of half 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 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.

John DiFucci: 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 Roei loosen up that marketing budget a little more and go out there really loud. Had Kip run the marketing because he's pretty loud.

Nadav Zafrir: Yes, I 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 funnel. And as Roei said, we're already seeing a very strong Q4 ahead of us.

Operator: Next up is Brian Essex with JPMorgan.

Brian Essex: I want 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 of 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 what is your vision in terms of how you see the AI firewall technology stacking up against what seems to be an emerging AI gateway market.

Are you targeting platforms that span -- I mean, I guess, are you thinking about expanding the platform to span across broader observability, tracing, performance optimization, cost control features, which is one thing that I think sales 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?

Nadav Zafrir: Yes. So I want to start by saying that we need some, I would say, humility as we try to understand where this is going. There are different possible futures in where this is going. And I think we must look at it from different perspectives. One perspective, which I spoke about at length is the attackers perspective. The second perspective is different industries and how they are adopting AI. So again, a lot of hype, but it's a process.

And there's a lot of trial and error within this process of adoption of AI, whether it's sort of the bread and butter that all of us have already, it's the MOE usage of AI, moving into independent agents that in the beginning, take over some of the human more redundant mundane day-to-day tasks, but over time, becoming more and more independent and autonomous. And that's where the game changes not only from the attackers perspective, but also from the attack surface. Having said all that, our mission remains the secure -- securing the AI adoption journey. And the way we approach this is with our customers.

And so we have a design partner program with different industries, with different verticals because health is different than finance. And finance is different than energy and energy is different than production and logistics. For each one of them, we have to sit down with our customers, understand where they're going in the next couple of years, simulate what kind of new threats emerge from that and coming up with the right mechanisms to govern, to control and to secure these new capabilities so that on the one hand, they can deploy it, but on the second -- but from a different perspective, they can do it with security in mind.

Now, being very direct to your question, Brian, we are focusing on the security part. But security is becoming much broader than just observability. Observability in many ways, when you think about the next paradigm or the emerging paradigm, doesn't really matter because going to the SOC or to the CISO or to the VP of Engineering and giving them a list of things that may go wrong is not going to help them. We need to be able to autonomously remediate. And so we're building those capabilities. But at the end of the day, we're not looking to go beyond the security level. We think security is very broad, very deep. We're building very deep capabilities.

But when you think about controlling this from a cost perspective, that's not necessarily where we're going. Of course, when you have the observability, you can add that to it.

Operator: Next up is Todd Weller, followed by Adam Tindle.

Todd Weller: Nadav, I would love to get your perspectives on potential AI tailwinds for the network security business. There's different kind of angles to this. There's AI application and infrastructure deployments related to that AI data centers. And then there's an angle around potentially increasing traffic volumes and spectrum requirements. So how do you think about framing those dimensions? How do you think about magnitude and timing of those opportunities? And then within your kind of core large enterprise base today, what are you seeing any of that? And where do you think we are?

Nadav Zafrir: Yes. I think that to your point about the tailwinds for security, I would look at it from -- I think there are 2 different aspects that are relevant to look at. The first one is how the network is a part of the overall AI defense plan. And the overall AI defense plane is on the device. It's in the cloud. It's in workloads, it's in the DevOps. And the network is at the heart of that and needs to play within that. And that's why the introduction of the AI network firewall as a part of the overall AI defense plan is so important.

And I think that's going to have a meaningful tailwind for the industry and for Check Point specifically. With thinking about that, it's not just about securing, it's also about managing. So our AI-driven unified management, which is becoming an open platform and allows us to manage different components and different vendors, different firewalls connected as a platform to the continuous threat exposure management, which gives us the ability to understand the intelligence from the outside in, the attackers path and combining that is one aspect. The second aspect is emerging new capabilities that enterprises are building. So for example, some enterprises are -- have already invested and some are thinking about investing in AI factories, right?

So localized capabilities sort of going back on-prem, whether it's because of privacy issues or cost issues. We're also seeing a plethora of rising investments in different parts of the world regarding data sovereignty, which is another issue. And finally, very specific data centers that are going to be either for inference or for training, which require different capabilities. So if you remember, a few months ago, we announced that we're working with NVIDIA to embed our firewall capability within the GPU level because in those data centers, latency is so important and East West traffic is so much more imminent that we literally need to do it at the hardware level in order to remain very, very efficient.

And so that's the second tailwind that we're seeing. However, to be transparent about [indiscernible] That is something that we're seeing in a little bit of a further future. So 2027, we need to start seeing that.

Operator: Next up is Adam Tindle, followed by Shaul Eyal.

Adam Tindle: Nadav, I wanted to ask on the business outlook. You're reiterating the fiscal year guidance this year. And if I back into the implied Q4, you're going to need to do about an $800 million revenue quarter at the midpoint of guidance. And I was going back through the model, I've never seen that. That would be a record quarter. You also mentioned earlier that guidance doesn't take the ramp into consideration. So I know it's more of a Rally question on guidance, but I wanted to hear from you, the debate oversetting that expectation today and what markers you're looking at for Q4. And Roei, any comments that you could give us on billings?

I know we kind of lost track. We were thinking 6% to 7% for the year entering the year. We've got this very difficult comp in Q3 that I think some are struggling to model. So just correct us a little bit on the billings trajectory as well?

Nadav Zafrir: Roei, do you want to start?

Roei Golan: I'll start. Yes. So definitely, you are right in terms of your calculation for Q4, it's around 6.5% growth for Q4 in order to meet -- be in the midpoint. I mentioned during my script that we do expect to be back to positive growth in product revenues. I remind you the main headwind that we see today on our revenues, the decline in revenues is coming from the product revenues, which declined this quarter of 14%, expected to be similar levels in Q3. And in Q4, we are expecting to be back to green, to be positive in product. So that's one aspect that definitely -- and I remind you also that Q4 is a more product-driven quarter.

The portion of product out of the total revenues is bigger than any other quarter in the year. So that's one aspect. And again, I think that when we are looking on the funnel for Q4, I know that it's much higher than what we guided for Q3, I mean this growth. But when we are looking on the funnel, on the qualified deals, I'm talking about qualified deal, I'm not talking about now potential stuff. We do see much better funnel, much better pipeline for Q4.

And again, we went through with our sales leaders on all the large deals, everything -- and again, some of them are deals that have been pushed from Q3 to Q4 that again, is expected to be pushed because there might be some that will be placed in Q3, but Q3 is more tricky because of the summer. So we took a more conservative year approach that some of this significant deal will be pushed to Q4. So definitely, it's a high bar in terms of Q4. But when I'm looking on the internal metrics, there is the support for that. And you asked about the billing.

So you're right, when we started -- I'm not giving any guidance for billing, but [indiscernible] I was asking about billing for the year. When we started the year, it was around mid -- mid-single digit, we talked about 5%, 6%. When we came back on May, we told -- again, because of the higher disruption that we did see, it resulted more back-end loaded year, and we do see it in the numbers for Q2. And when I'm looking on H2, I don't want to give any specific guidance, but definitely, I do see much better billings in Q4 in terms of growth. Q3, you are right that the comparables are tougher.

So there might be -- so as we said, Q3 is going to be -- might be more challenging with billing. But Q4, definitely, we are expecting, again, if we are looking on the funnel on large deals and definitely, we expect to be a strong bidding quarter.

Nadav Zafrir: Yes. Just to add to that, Adam, remember that when we spoke in our last earnings, we were very transparent about the reorg that we did in our go-to-market org. That's going according to plan. And so that's why we think Q3 is the trough. And when we look at what's happening in the future in Q4, like Roei said, we're seeing a much better outcome, and that's why we are maintaining the guidance. With regards to the hiring, the reason we're not taking that into consideration is the natural ramp-up. right? So it's the second phase.

And in fact, when you think about it now because this is a company-wide effort and many of our folks beyond selling need to recruit and onboard. And so actually, we're not going to see the impact of the hiring in 2026. We're only going to see the impact of the hiring in 2027, right? So some of it in Q1 and hopefully more of it in Q2. But it's the prudent thing to do. And it's a part of the plan and a part of the strategy that we spoke about last time. And for us, hiring hundreds of new sellers is obviously a great investment, and we're investing in our future.

So last year, we spoke about hiring about 500 new R&D folks to start doubling down on the future products for the AI era. Now we feel we're ready with some of the products. We've done the reorg and we're ready to ramp up. But as you said, that's only going to have an impact in 2027.

Roei Golan: Just one more comment about billing, Adam. I think it's important to say it here. I understand that you are following billing if it's important for cash flow and stuff. But it's not only metric that we are here. We are looking on new business. We are looking on RPO, which is I mentioned it today, the bookings. I can give you an example this quarter, the billing was affected. I didn't mention in the script because I -- again, I thought it's not -- probably I would be happy about it.

But again, the billing this quarter affected, for example, from large deals that was renewed -- it's not only renewal, it's renewal and new business that last year, we build annually and this year, we build quarterly. This alone -- alone have an effect of 2 points on our billings this quarter, just moving from annually to quarterly. And we are flexible with that. I mean it's a large deal, very large deal with new business. You don't see it in the billing because we are billing it quarterly. We approved -- I approved the quarterly billing on that aspect.

But again, if you would bill it annually, probably our billing will look much better for this year, but it wouldn't change the fact that our RPO grew by 7%. So I totally understand the importance of billing and it gives you some kind of prediction of what's going on in the business. But definitely, it's not the only metric that we are following.

Operator: Next up is a Shaul Eyal and that will be followed by Shrenik Kothari from Baird.

Shaul Eyal: Maybe [indiscernible] still double-clicking on this headcount. When we're saying hundreds of new people, what is it 200, 300? And how do you think about it geographically from that perspective?

Nadav Zafrir: Yes. So I'll start, Roei, you can chime in. When we say hundreds, yes, we're talking about by the end of the year, we need to hire approximately for our go-to-market, a headcount of about 300 more individuals. When you look at it from a percentage perspective, it's a meaningful percentage at our size. When you think about it geographically, honestly, it's pretty globally spread. So I wouldn't say that it's just one area, the America, Western Europe, a little bit more, but it's across the globe, APAC, et cetera. Some of it is at the frontline sellers, what we call the generalists, but also specialists. So for example, we spoke about AI. We're seeing the funnel growing very substantially.

In some cases, we just don't have the people out there that can actually go out to customers and do the POCs. And so we have to ramp up that very, very fast. Obviously, getting -- just getting the heads is not enough. We need to get the right people on board that are also ready for this future generation of buyers and the new paradigm that's emerging. And so it's an opportunity, not just to get more headcount, but also to revitalize and get new blood into the system. And that's exactly what we're doing. It's a company-wide effort.

Again, we are within -- we launched the campaign, and we hope to be able to get to the right people that want to join us for this ride.

Operator: Next up is Shrenik, followed by Joshua Tilton.

Shrenik Kothari: So totally, I understand the internal execution disruption around go-to-market. But just on your specific comments on firewall appliance demand softer than you expected, right? And some of the peers are seeing stronger firewall demand, AI infrastructure-driven product growth. So just Nadav and Roei, can you help unpack that a bit? Like what are your customers actually doing? Are they extending the useful life without pricing right now? Are they shifting focus towards more AI-centric enforcement, which is sort of elongating cycles? Just -- are these pushes primarily rep transition driven? Or are customers fundamentally reevaluating the scopes and the architecture in the AI era as well?

Roei Golan: I'll start. So I think it's a combination, Shrenik. I think it's a combination of still facing internal disruption that's affecting our execution that -- again, we are -- our execution in Q2, I mean, you've seen the numbers was not there what we wanted when we started the year. But I would say it's a combination of internal disruption and definitely also behavior of customers that I think again, some of them, we are looking on the memory cost and it's something that I'm spending significant part of my time to find a way to make sure that we have the enough inventory to give -- by the way, it's not only for appliances, it's also for internal users.

So again, probably it's a combination. I don't think it's a clear -- there is no clear answer for that. But definitely, when I'm looking -- and I think it's mainly -- when I'm looking on our business, I think it's mainly internally -- mainly internally because I'm looking on the funnel. I'm looking on deals, I'm looking at our go-to-market being stabilized. And I'm looking that we are now -- we have very interesting opportunities, qualified opportunities that located in the second half of the year, mainly in Q4 that makes us feel more positive that it's more internal and less external.

Nadav Zafrir: Yes. I would say that the demand is there, right? We're seeing it and you're seeing it with our competition as well. That's why we're so excited about the announcement of the AI network firewall today. The unified management that we're coming out with and hopefully, the fruits of a lot of investment that we put into this in the last couple of years will start to show. And then the optimism comes from what we see already in Q4, and that's why we're doubling down also to get ready for a higher growth in 2027.

Having said all that, from the customers' perspective, look, I think that top of mind for them right now is, like I said, first of all, go back to basics and fundamentals. This era calls for patching at an unprecedented pace. That's just one example. And so we're also building the capabilities to do that with them and for them, not just for our own products. But again, we have to have the total security in mind. They're also getting a lot of pressure from the executives and the Board to adopt AI, whether it's to allow employees to use it or new applications and agents that are now running within the -- so it is a transition time.

What I believe is that it calls for us to continue doing what we've always done which is prevention first, but at the same time, we're really changing the industry. And that's both on the network level with the AI network firewall and the new unified management. But at the same time, combining that with our Workspace, our CTEM, our AI defense plane and going forward, probably more capabilities that we will need to add to this in order to build this open platform that our customers can rely on for their secure AI transformation.

Operator: Next up is Joshua Tilton, followed by Junaid Siddiqui.

Joshua Tilton: Maybe a quick clarification and then my actual question. On the clarification side, maybe this is for Roei, but I understand you're reiterating the full year outlook. And you guys are confident in what it implies for Q4. But I guess what I'm trying to understand is when you think about what is implied on a quarterly basis, is this how you expected it to play out when you first took guidance down 90 days ago? Or did something change between now and then that we're pointing to a much stronger Q4?

And then maybe just a follow-up and my actual question for Nadav is what happens when we get past the disruption from this year, you ramp hundreds of salespeople, all these products are on fire. Everybody needs to replace their current firewall with an AI firewall. Like what is the durable growth profile that we should be expecting when we move past the disruption, sales ramps, and all the sexiness around some of these newer products starts to really come through the model?

Roei Golan: So I'll start and then Nadav, you can take it. So regarding the guidance, so when we gave the guidance in May, so actually, we did expect slight improvement in the third quarter in terms of appliances. I mentioned during my -- in my presentation that we did see -- we do expect more deals that will be pushed from Q3 to Q4, mainly on appliances, that's affecting not just appliances revenues, but also support and subscription revenues because they have an attached -- it's bundling and they have an attached revenues of subscription and support to every client.

So I would say that the expectation in the beginning -- back in May that Q3 will be slightly better, slightly better, not significantly better, slightly better in Q4. So that's -- but because of the deals being that we are expecting now to be pushed from Q3 to Q4, that's how we are projecting now. Nadav?

Nadav Zafrir: Going forward, looking at 2027 and beyond, from a general industry perspective, I think the security demand will continue to grow. Because we are between true paradigms, I think that we will see meaningful changes over the next couple of years, and we need to get ready for that. Our vision of securing the AI transformation through an open platform means that we have a lot of integration to do, for example, between the network and the continuous threat exposure management. There's a lot of integration that we need to do between workspace and AI. So there's a long road map ahead of us.

And at the same time, we also have to keep our eyes wide open to what's out there from the emerging start-up community that is doing some very exciting things, and we're looking at that. The combination of that vision and strategy that we're starting to see the fruits of with the stabilization of the go-to-market and the hiring of new people obviously makes us optimistic. And I think that the hit that we took will position us for a better outlook going forward. Obviously, I don't -- we're not giving guidance now for -- beyond that. It's not a short journey. This is a company that has been around for -- from the beginning of cybersecurity history.

We need to build it for the next decades. It's a process. It's a journey. And I think that we're seeing it going according to plan right now. And hopefully, more good things to come.

Operator: All right. Next up is Junaid, followed by Saket Kalia.

Junaid Siddiqui: Nadav, you've previously indicated SASE still around 12 to 18 months away from supporting your largest enterprise customers at the scale that you envision. What milestones should we be watching over the next year? And how close are you to being able to compete for the same global deployments targeted by the market leaders?

Nadav Zafrir: Yes. Thanks for that, Junaid. So yes, SASE is an integral part of our hybrid mesh proposition and part of the platform. We are now at a point where in terms of capacity, we're already ready for the enterprise level and integrating SASE into our unified management as we speak. I think we already have a proposition that in some aspects is best-in-class. So for example, we have the best latency with our hybrid device architecture. It's fast and easy to deploy and manage. And so I think we're ready to go bigger with our SASE, and this is the time to do it. So we're focused on it.

We have a very strong and capable R&D team as a part of the -- and the hiring that we're doing is focused specifically on specialists that will go out and do this. And more important than anything is to put that as part of the platform. So connected to the firewall through our hybrid mesh management so that our customers can push their policy, both to the SASE remote access, Internet access within the firewall, integrate that into our AI defense plan. There is a lot of work to do there, but we've made a lot of progress, and we're ready to go bigger, as I indicated before.

Operator: Next up is Saket Kalia, followed by Eric Heath, who will most likely be our last caller today.

Saket Kalia: Great. Roei, maybe for you. I'd love to dig into the sales investment just from a financial perspective, right? I'm sure that we can all take a shot at the financial impact of hiring 300 additional resources. And just to be clear, that sounds like it's the right thing to do to invest for growth. Not necessarily looking here for guide for next year, but I want to make sure it's asked. Is there any way that you want us to think about the margin impact of that investment, understanding that it's short-term pain for long-term gain?

Roei Golan: I would say that, first of all, the hiring impact will be less for this year because it's going to be mainly for next year, the hiring. But I would say for next year margin, I will wait with that for the next calls because we have actually -- we have the -- next week, we have -- we are -- kick off our planning for next year -- for 2027. And I don't want now to give you anything because it's still very early stages. So I would say let's wait with that for the next call regarding margin for next year.

Operator: Next up is Eric Heath.

Eric Heath: Roei, Nadav, maybe just to come back one more time to the 3Q, 4Q seasonality. So can you just put a finer point of what changed since last quarter in terms of why you're expecting deals to push? Is this internal execution just giving you a little bit more prudence? Or is there something changing on the customer behavior side that maybe changed in the last 90 days?

Roei Golan: I think it's less customer behavior. I think it's more -- again, we've done a very thorough analysis going through our pipeline for Q3 and Q4. I think we have, I would say, a bit more prudent approach about Q3. We are taking a more prudent approach in terms of deals that have been going to be pushed from Q3 to Q4. I'm taking it because Q3 is usually a tricky quarter because of the summer. People are in vacations, holidays and are back to work in September. So we are taking a more prudent approach. But definitely, I think we do see improvement and more stabilization in our go-to-market.

And therefore, I think we are going to this hiring campaign that we feel confident with expanding our go-to-market now after it being stabilized after the disruption that we had in the first half of the year. Nadav, do you want to add something around it or...

Nadav Zafrir: No. Again, H2 back-end-loaded, so a lot riding on Q4. It's about having a better execution and making sure that we have the right headcount and the right people as we go into 2027. And as Roei said, that's what we're starting to plan for now.

Kip Meintzer: All right, everybody. That's going to conclude today. We thank you all for showing up and participating, and we'll be seeing you shortly hereafter in the analyst calls. And the rest of you that are following us today, we'll see you throughout the quarter. Thank you, and have a great day, guys. Bye-bye.

Roei Golan: Bye-bye. Thank you.