I'd like to remind everyone that this conference is being recorded and will be available for replay on our website at Checkpoint.com. During the formal presentation, all participants are in a listen-only mode that will be followed by a Q&A session. During the presentation, Checkpoint's representatives may make forward-looking statements. Forward-looking statements generally relate to future events or These statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Any forward-looking statements made speak only as of the date hereof, and Check Point Software undertakes no obligation to update publicly any forward-looking statements. In our press release, which has been posted on our website, we present GAAP and non-GAAP results, along with a reconciliation of such results, as well as the reasons for our presentation of non-GAAP information. If you have any questions after the call, please feel free to contact Investor Relations by email at kip.checkpoint.com. Now I'd like to turn the call over to Nadav.

Thank you, Kip, and thank you all for joining us today. So let me start with a headline. In July, we said we expected the third quarter to mark the trough in product revenue, and we believe it did. Our third quarter results came in within the range we expected. Total revenue was 670 million, pretty much at the midpoint of our projections. At the same time, subscription revenue grew 11% year over year. Driven by the strong growth in our email, continuous threat exposure management, and AI technologies. While non-gap EPS and adjusted free cash flow finished above the midpoint of our projections. The go-to-market changes that we've been talking about in the beginning of the year are now embedded, and we're making progress in sales capacity expansion that we outlined in July. Just as important, Several of the leading indicators that we watched closely moved in the right direction during the quarter, including multiple wins of seven figures or even greater across critical infrastructure and regulated industries. So, as I said, we believe Q3 marked the bottom for revenue and we expect sequential improvement beginning in the fourth quarter. At the same time, I want to be clear that the pace of recovery is more gradual than we previously anticipated and you'll see in our fourth quarter outlook it reflects that measured recovery. On the product side, we continue to redefine network security for the AI era. In July, we launched our AI network firewall, bringing visibility and control specifically over AI traffic directly to the checkpoint firewalls that our customers already rely on. Our new agentic security management platform can now translate business intent into policy and specifically zero trust policies across both checkpoint and multi-vendor environments per our open platform vision. And just a few days ago, we introduced our next generation Maestro Hyperscale Orchestrator, which is designed to support neoclouds, telcos, and governments, as well as large enterprise to inspect AI traffic in the data center without compromising security or performance. So while the recovery is taking a little bit longer than we initially expected, we believe we have turned the corner. And we expect product revenue to begin improving in the fourth quarter and beyond. I'm also very excited about the continuing success of email, CTAM, our exposure management and AI solutions. These solutions extend Check Point well beyond the network security. And as we bring them together, they continue to deliver a strong ARR growth in Q3. Let me start with the exposure management, which connects directly to how we are redefining network security. As you all know, security teams are now buried in vulnerabilities and the noise level is rising. And so our agentic exposure validation checks its exposure simulating real attackers in order to enable a preemption approach. In fact, this approach proved itself in the PHP 2 shell vulnerability and provided runtime prevention for our customers. In fact, we've already started to implement this vision, signing a significant eight-figure deal with Fortune 200 Energy Company to deliver solutions through both network modernization and exposure management. At the same time, security for AI obviously remains top of mind for the CISOs who we work with, and we continue to grow rapidly, including a seven-figure deal with a leading global electronics manufacturer to secure their employee AI usage. In this case, we're talking about over 80,000 employees. With our AI defense plane, we're securing not just employees but applications agents and continue to work alongside OpenAI, Anthropic and NVIDIA to enable our customers' AI transformation. Of course, securing your AI also means protecting the people who use it, all of us. And that starts in the inbox. Phishing is now written by AI and attackers can hide instructions in those emails that try to hijack the AI assistants that actually read them, these agents. And we have to be able to stop both before they reach users or the AI workflows. Workforce Security, anchored by our leadership in email security, actually remains a very strong growth engine. We recently crossed the $200 million in ARR in email security, and we believe the market potential continues to be significant. And that's the strength of our portfolio. One company that can secure the network, manages the exposures, protects AI applications and agents, and defends the workforce. At the same time, we are continuing to strengthen our leadership. Earlier this year, Adam Ely joined us to lead the AI pillar. He's now expanded his role to lead business operation as our new chief business officer. As you know, Adam brings firsthand CISO experience and deep relationships across the security community. He will now own company-wide strategy and growth, working across product, go-to-market, corporate development and strategic partnerships to turn customer and market needs into checkpoint platform strategy and execution. Now, I also want to share that we launched a new marketing campaign. It's time AI had a checkpoint. We're bringing this message to enterprise decision makers in major markets with a very simple message. As AI becomes a part of every business, it's time AI had a checkpoint. So to summarize, given the growing demand in our market, our improving execution, we're cautiously optimistic about the path ahead. During our upcoming Capital Markets Day at CPX in Las Vegas on February 10th, we intend to share our long-term strategy. I hope you all can make it and join us. And with that, I'll turn over to Roei to talk a little bit more about some of the financials. Roei, go ahead.

Roei, you gotta, there you go.

Can you hear me? Yes. Great, sorry. So thank you Nadav and thank you everyone for joining the call. As Nadav mentioned, our third quarter results were in line with our guidance. Our total revenues were $670 million at the midpoint of our guidance, representing a 1% decrease overall, mainly due to a lower firewall and plant-based refresh activity as expected in this quarter. Our total subscription revenue remains strong, reaching $339 million, $1 million above the midpoint of our projection, with 11% growth year-over-year. Our adjusted free cash flow was $258 million, $8 million above the midpoint of our projections, while our non-GAAP EPS was $2.49 per diluted share, $0.01 above the midpoint of our projections. Again, our revenues reached $670 million, and as I indicated, declined by 1%. This was mainly as a result of decline in our product revenues, primarily reflecting less refresh project of firewall appliances this quarter. This lower refresh project impacted negatively also our software updates and maintenance and services revenues, due to lower tech support and less revenues for professional services. This was offset by another strong quarter of subscription revenues with 11% growth in overall. Based on the pipeline and our internal metrics that we see today, we believe Q3 revenues represent the trough and we expect to see the beginning of the improvement starting in Q4. We do expect, as Nadav mentioned, the recovery to be more gradual, but we are encouraged by the direction of the internal indicators we are seeing. Our deferred revenues as of the end of the quarter were $1,992,000,000, 6% growth year-over-year. Our calculated billing totaled to $636,000,000, represent 5% decrease compared to last year. It is important to remind you that Q3 last year benefited by approximately incremental 5 points from deal slippages from Q2 and earlier years from Q4 more than the usual, creating a tougher year-over-year comparison. Our remaining performance obligation grew by 5% and reached $2,513,000,000. Turning into subscription revenues, so we continue to see strong performance there with 11% growth year-over-year, driven by strong demand for our growth technology. And subscription revenue today already represents 51% of our total revenues. And this brings me to the key driver behind that performance. Email security, AI security, and CTEM continue to demonstrate strong momentum with ARR growing by more than 38% year-over-year and calculated billing growing by more than 47% this quarter. It is important to know that our email security ARR passed $200 million this quarter. These technologies are becoming an increasingly important part of our business and remain a key driver of our overall growth. As for the next quarter, we do expect to see slightly deacceleration in our subscription revenues due to the headwind from lower firewall appliances refresh, both in Q3 and in the beginning of Q4. The result is lower attached firewall subscription, but we do expect the subscription growth to accelerate back in H1 2027. Driven by our pricing is that we recently announced between 12 to 20% on our firewall products and also our continuous strong demand for the new growth technology of AI, CTEM and email and expect our annual subscription next in 2027 to cross the 1.5 billion dollar. Reviewing the P&L in this quarter, so our revenues of $670 million were composed of 46% of them were revenues that came from EMEA, 41% of them came from America, and the remaining 13% came from Asia Pacific. Our gross profit decreased from $602 to $585 million, representing a gross margin of 87%. The decrease in gross margin was explained due to higher memory costs. Our operating expenses, excluding R&D grants, increased by 12%, while on a constant currency basis, our OPEX increased by 8%, and it was primarily as a result of an increase in our workforce and our investment in AI security and investment in sales and marketing. Our third quarter results include approximately 25 million of benefits from R&D grants to be received under the Israeli incentive program law, reflecting the associated impact in our financial results. Our operating expenses, net of R&D grants, were $334 million and increased by 4% year-over-year. Our non-GAAP operating income continues to be strong at $251 million or 37.4% operating margin. Turning into the ethics, as we indicated last year and also during the previous quarter, We expected that the currency environment will create a meaningful headwind in our operating expenses in 2026. This has played out largely as we expected, with an impact of approximately $30 million year-to-date, primarily reflecting the weakening of the US dollar against the Israeli shekel. Based on the current exchange rate that we see today, we expect a greater impact in the fourth quarter, and this compared to what we had in Q3 and this is already reflected in the guidance we will provide you for the fourth quarter. When we're looking in 2027, if the currency environment remains broadly consistent what we see today, we expect an additional headwind on our operating expenses as our aging rates in 2027, mainly in the first half of the year, are less favorable than those secured for the same period in 2026. At the current exchange rate, we estimate that the incremental impact in our operating expense in 2027 could reach up to $50 million incremental in 2027. Our non-GAAP net income reached $254 million and our non-GAAP EPS was $2.49, while GAAP net income reached $185 million and GAAP EPS was $1.82. Our number of fully diluted outstanding shares were 101.9 million shares as of the end of the quarter. While we continue to do our buyback, we expect the number of shares for the next quarter to decrease by approximately 2 million shares. Moving into our cash flow, so our adjusted free cash flow was strong this quarter and reached $258 million in the upper end of the range we provided. Our adjusted free cash flow for the last 12 months reached $1,179,000,000. If we are looking at our share repurchases we've done, so in Q3 we also continued our buyback program and purchased additional 2.5 million shares for $325 million at an average price of $132 per share. In the last 12 months, we purchased a total of 9 million shares for approximately $1.4 billion. So to summarize our financials this quarter, so we continue to see strong demand for email security, CTEM, and AI security debt driving the subscription revenues. On the other hand, we did have a decline in our revenues and our product revenues and maintenance revenues because of less firewall appliances bookings and revenues. We do expect that Q3, from here on, we're going to see improvement on that aspect. And we finished this quarter with another strong adjusted free cash flow above the midpoint of our guidance. Moving into our guidance for the next quarter and then the updated full year. So the guidance, the updated guidance, the guidance, sorry, for the fourth quarter is the range for the revenues is between 720 to $770 million, while the midpoint is 745. representing a flat year-over-year. Our subscription revenues range is between 351 to 362. Our non-GAAP EPS is expected to be between $2.71 to $2.83, while our GAAP EPS is expected to be 70 cents less, while our adjusted free cash flow is expected to be between $260 to $290 million. Moving into the annual updated guidance, so this is how it looks. Our total revenues will be between $2,732,000 to $2,782,000 revenues subscription between $1,345,000 to $1,356,000. Our non-GAP EPS between $10.25 to $10.37, while our GAAP EPS expected to be $2.74 less. and our adjusted free cash flow expected to be between $1,136,000,000 to $1,166,000,000. This is our guidance for the year and we can move the questions to the questions, Kip.

Yes. First up today for questions will be John DeFucci from Guggenheim Partners followed by Joseph Gallo at Jefferies.

Thank you. Thanks, Kip. Hi, Nadav and Roei.

Hey, John.

Nadav, listen, you say, and Roei said, it's going to take a little longer to shift back to recovery here. Checkpoint's always been a strong technology company, and this is sort of a high-level question. And it's great that your install base is really loyal here. But gaining, when we talk to people in the field, and we do a lot of that, so does everybody on this call, it really sounds like it's been hard for you guys to capture new customers here. How do you, and by the way, there's this sort of perception of Check Point as a really good technology company, but sort of a legacy technology company. And I'm just like, how do you actually shake that perception? Because usually when we see that happen, and it's really rare in history, it requires massive change, like dramatic change. And I know you're part of that and bringing you in was really part of that. But is it, is it, Thank you so much for having me.

about 23 hours of my day planning and thinking about. I'll say the following. First of all, perception is perception, like you said. I do think it's changing, and I'll tell you why I'm optimistic. I would say two things. Number one is what we actually said about the Q3 numbers. If you look at our emerging technologies, right, so email, CTEM, AI, These are exceptional technologies that are growing at almost 40% year over year across the board, representing a much larger part of our portfolio. But that's not the only thing. They also allow us to talk to new buyers, new people and new logos. And it's very, very important because they're obviously, in my humble opinion, they really provide better security. So that's one thing. The second thing is we're no longer a firewall company and we're no longer a network security company. We are looking at where the attackers are going and I personally believe after 30 years in this industry that the current paradigm, we're seeing holes in the current paradigm and I think it won't be long before many of the things that we were accustomed to will become less and less relevant. And so we have to move from a Looking at the rear view mirror and we have to start anticipating attacks. This is what we call preemptive security. And we'll be talking at length about that strategy and that vision and how we're going to implement it in our February Checkpoint X event. But I believe that with these emerging technologies that are becoming more and more prevalent, and the new vision and as we start to implement the strategy and some of it is already happening with customers, moving from a reactive state of mind to a proactive preemptive state of mind is where the world needs to go. And that's where I believe Check Point will create the new perception around it.

Okay, okay. So we'll just be patient a little bit more. So we'll churn you on. Listen, Roei, I have a quick follow up for you. You mentioned and you gave us a little bit of a hint in the maintenance and support line. But in your line, you have that services line and the services was weak. Sequentially, that line was down about 1%. Just look at maintenance and support sequentially. What did that do?

So if you are looking today on the decline that we had Q over Q, so half of it came from actually from professional service, half I mean in terms of dollars, and half of it came from the maintenance revenues. So that's the main. And again, that's... We believe that that's the trough also of Q3 in terms of maintenance because that's coming because of the lower refresh that we did see in Q2, in Q3. And also the guidance takes into account that we see still decline in the product revenue. So this has... This is the impact of that, that we have less refresh and therefore less professional services. On the other end, as I mentioned also on my deck, that we did announce price increase for all our firewall products, including support, the attached support and subscription that will be effective, not will be, is effective from October 4. And that would have an impact mostly from Q1 because it's over time, so we'll see it We do expect that support and the maintenance line item will be improved in the next few quarters.

Okay, thank you, Roei. Thank you, Nadav.

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

Hey guys, thanks for the question. I want to follow up a little bit on that last part. I think durability of subscription is extremely important in the story next year. Can subscription grow double digits in 27? I mean, Nadav and Roei, I want both your takes, but three Q subs decelerated a point, four Qs implying another deceleration, current service billings declined, and you have pricing and inorganic benefits this year. So just help us think about the durability of subscription next year. Thank you.

So just the last comment that you have. Actually, we didn't have inorganic benefit this year. So everything is organic, this year specifically. And pricing, actually, we did the price increase, which was mainly affected the H1, but less H2 back then in July. So I think definitely it's doable. I mean, we are looking on today on our business. I'll start and Nadav, if you want to add on that. But when we are looking on our technologies, the CTEM, our AI security, which is becoming more and more significant every quarter, and the email security that we mentioned that already crossed the $200 million ARR, these together are growing very nicely. They are growing above 38% in ARR. Calculated billings this quarter, 47%. Very strong. It's not one quarter. We see sustainable growth in these three products. And even with the Edwin that we have this year, specifically in Q2, specifically in Q3 and also in Q4, on our subscription that's coming from the lower refresh that we had this year, even with that, we managed to go double digit. I think that we are starting to see also stabilization on the refresh, and we're going to start to see improvement also on the refresh that will also help the subscription next year. and on top of it the price increase that I just mentioned that the pricing is on the firewall that of course we are not going to benefit 100% of it but historically we managed to benefit from this price increase and that's something that all together we believe that that's durable and definitely can grow double digital for next year.

To add to that, Joe, the answer is yes. I will add what we've already spoken about, but it merits to reiterate. We made a major change in the beginning of the year. It's taken us a little time to settle things, but it's now embedded. And as we said in July, we're also hiring more people at the front line. Across the board, strategic accounts, major accounts, specialists, sales engineers, increasing our capacity substantially so that when we go into 2027, we're set to start accelerating. So that's one thing. The second thing is the market dynamic. The market dynamic is favorable, right? I mean, there's never been a Thank you very much.

Very helpful. Thank you very much.

All right. Next up is Patrick Colville, followed by Todd Weller of Stevens Bank. Stevens & Company.

Thanks, Kip. And Nadav and Roei, thank you for having me on. I guess I'm just going to ask a very quick tactical one and a more strategic one. The tactical question is, in terms of the price increase that, Roei, you kind of teased a few times, would you be able to provide some guardrails around quantifying that? And then for you, Nadav, the more strategic questions around Firewalls to protect AI data centers. We're going through this gigantic CapEx build out. Is it going to accelerate next year in terms of the amount of AI compute coming online? Just talk us through the opportunity that Check Point has against that. And is there stuff in the pipeline or would that be incremental from here?

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

Yeah, look, I think it's unprecedented, right? The investment in data centers and specifically AI data centers, whether it's for training or for inference, is just mind-boggling. And these data centers need security. In fact, that's some of the places where we believe this is going actually to be incremental starting 2027. We're making meaningful investments to make sure that we have the capacity and the security to enable the east-west traffic in some of these data centers, which is unprecedented. And so I think these abilities are going to be a tailwind for us. And to your question, is it in the pipeline or incremental? I think some of it is already in the pipeline, but as real revenue, we started to see it in 2026, and we hope to see this growing in 2027. By the way, it's not just the infrastructure that's being built. It's also the kind of traffic that moves east-west or north-south in these data centers. A lot of it is new kind of traffic. A lot of it is encrypted. It takes real stateful capabilities. Some of it also has to do with data sovereignty and the ability to run different kind of models, not just the traditional generalist models that we all talk about, but also open-weight models. And so it's a brand new world out there To the question below about the legacy part, I know that this is something that we need to deal with and shake it off. But remember that in actuality, the abilities that we've built over 30 years in many ways are becoming more relevant, not less. It doesn't mean that we don't have to have a larger portfolio and better integration. Better execution, better go-to-market. But the abilities that we have, the engineering capabilities that we have, the telemetry that we have from over 100,000 customers, the fact that we are training our own small language foundational model based on the acquisition that we did in Zurich, Likuri, if you remember. All these are coming together to where we believe there's never been a bigger need for what we can actually do. So, you know, this gives us the ability to be cautiously optimistic about 2027.

All right. Next up is Todd Weller, followed by Adam Tindall from Raymond James.

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

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

I think you covered it. I think that definitely the funnel that we do see, the funnel, the qualified funnel, I think we feel more confident with what we see for the current quarter. Of course, like always, Q4, there is a lot of refresh activity and more product revenues. But in the end, we do feel confident with the funnel we see for Q4. And I think the other leading indicators, again, it's more for long term, less for the Q4, but definitely we talked with you three months ago about expanding our sales capacity. I think since in the last three months we expanded by dozens of new sellers that increased our sales capacity and we have more of them that already signed and will join us in the next few months. We'll be able to start with much higher sales capacity in 2027 compared to what we had in the beginning of this year.

And then to add to that, Todd, to your question about the sales force, I'd say three things that we're doing in 2026. Number one is leadership. So getting the right leaders in the right places. So, you know, a new leader for for America, a new CRO and some other very, you know, and other consequential leadership positions that joined us this year. The second thing is the nature of how we go to market. Now that we are a portfolio which is much more diverse, And as we're moving into our strategy of preemptive security and bringing together some of these technologies, it also takes some training for our existing people and bringing new people on board. And finally, it's the underlying, I would say, structure and execution. As you already know, these changes slowed us down in 2026, especially until now. But we think these changes are embedded and again are cautiously optimistic that we'll now start harnessing some of the outcomes so that we can go back to growth.

All right, next up is Adam Tindall from Raymond James, followed by Srinik Kothari from Baird.

Thanks, Kip. Just one for Roei and a follow-up for Nadav. I'll ask them at the same time. I think Roei caught in the script that you talked about annual subs over $1.5 billion for 2027. I was wondering if you could break apart the drivers of that, whether that's maybe the maintenance portion versus the subs portion. It sounds like there's a pricing contribution to that as well. So just a little bit more granularity on that bill, since it'll be important for investors to hang on to. And Nadav, on that pricing point, I just wanted to double click on the decision and impact expected from price increases. We're in a situation, obviously, hopefully troughing here, but product has been down double digits. It's an accelerating decline. Just a little uncommon to see a company raise price when demand is deteriorating so much. Would love to understand when that was announced and goes into effect. Feedback and fear that that could lead to further deceleration.

Thanks, guys. So I'll start with the subscription. We talked about the $1.5 billion subscription revenues in 2027. Again, that's coming from several items. First, The first driven by our product, by AI security, email security, and CTEM that keep growing very nicely and becoming more and more significant to our total business. They are already less today, almost 30% of our total ARR, subscription ARR, and there's a long growing in a 40%. Of course, we take into account some benefit from the price increase that we did in Q4. of course we didn't take into account 100% benefit this 1.5 billion we take into account the trends that usually we got that we've seen in historically when we did the price increase and And second, back to stabilization, I think we already start to see it in Q4, stabilization in terms of, you asked, Nadav, about the product revenues, to start looking at better in stabilization and back to growth in product revenues. So all of that together put us in a position that we believe that we should be able to cross, we should cross the $1.5 billion subscription. I'll touch base only on the one sentence on the pricing because you asked about and then I'll let Nadav to. So I think of course it's a very good question to asking how come we are increasing pricing when we see this decline in our product revenues. In the end, before we decided on increasing the pricing, it was back then and we announced it back then in the beginning of September. We increased our pricing. It was announced because, again, there are several factors here. One, I think the most important one is the memory cost. The memory cost is inflated. I mean, it keeps increasing. You know, we paid it this year. We said that it's going to impact our margin by approximately one point. Next year, probably we're going to have a similar effect. Again, it's too early to say because the memory costs keep changing all the time. So definitely that's the first thing. And second, we looked on the market. We're looking that everyone right now, hardware, even if it's not security, everyone is increasing now because of the components. Everyone increasing. I mean, you've seen now competition. If it's Fortinet or Palo Alto, I think they both announced in the same timing that we announced the price increase. So I think the market, the customer also understand. I can tell you that based, I'm talking with our sales leaders. And the customers understand the price increase because of the memory cost. I mean, everyone is paying more now because of what's going on with the memories. So that was the thought around it. And Nadav, you want to add something about it?

Well, what I would say, Adam, is that we are doing this after carefully analyzing. And so when you say it's accelerating, it's... What we see now in Q3 and some of what we see in Q4 is obviously still a part of the funnel that we created in H1. Now we see the improvement. And so we believe that not only we've reached the trough, but that we're reversing sort of the trend in our appliances, in our product revenue. This will already improve in Q4 and continue to improve throughout 2027, but also take into consideration that the demand is high not only for the traditional enterprise data center, but just as we spoke a little bit before, When we look at where the market is going and when we look at where the attacks are coming from, where the dollars are going into infrastructure, a lot of these technologies that we've built in the last few years are very relevant as we augment them. And augmenting them also means that we're making huge investments. I can tell you that in 2026 alone, the investment in security for AI and in AI for Security in order to simplify everything that we deliver to our customers. Because remember, the future is about anticipating, the future is about simplifying and the future is about automating. So there's a huge amount of investment that goes there. And we do expect to see some of that coming to fruition in 2027 with new capabilities, new products. Like we said, we just announced the new AI firewall. Our agentic management system that is maturing is becoming much more relevant and much more to come after that. And so we believe that it's a very reasonable price increase that won't hurt the demand.

All right, next up is Shrenik Kothari followed by Joshua Tilton.

Yeah, thanks a lot for taking my question. So on a related note, With the recovery now taking longer and then you did touch upon it a little bit, but could these extensions and delays and the refreshes represent a more structural change? Just wanted to understand a little bit about how much of this refresh backlog or extension is attributable to the budget constraints versus sort of broader architectural decisions for modernization and Since you mentioned about all these AI-centric products, how much confidence do you have that this requirement, high inspection, will ultimately actuate modernization? And just very quick follow-up on that front, like the introduction of the firewall as a service, can you talk a little bit about that? Does it potentially reduce upfront capital? Is that a factor and gives customers more flexibility in this modernization? Yeah.

Yeah, no, so great question, Srinik. I'll tell you, it's a little bit ironic, but when you think about where network security is going, it's not the same trend that we've seen until about a year ago. Especially when you talk about AI-focused data centers and infrastructure, some of it is actually changing the reverse trend that we've seen in the last few years. It goes back to some of the customers around the globe that are focused on data sovereignty. It's the fact that what goes on in these data centers is a little bit different, a lot more east-west traffic, especially when you're doing training for these new models and we're seeing more and more demand for that. And so there are different trends that we're seeing. At the same time, obviously, we also need to think about the traditional modernization trajectory that we've seen over almost a decade. And that's why Firewall is a service for sort of the traditional, and you know, it sounds funny that I call it traditional, but it is now the traditional in the AI era, Some of our more traditional enterprise customers would just rather consume their security as a service rather than having the hardware. But we're seeing two trends happening at the same time, right? So I think they'll even off each other. And obviously, we want to take advantage of both trends. And so that's why we're also launching this firewall as a service. But... Beyond that, I truly see that customers are looking for something more. In a nutshell, when I speak to CISOs and tomorrow we're off to Munich to have our leaders point where we're going to have dozens and dozens of the leading CISOs in Europe with us for three days. And I'm sure I'll hear a lot more of that. Something that they're telling us more and more is, stop telling me about my problems, fix them for me. And you need to do it in an automated way because they're really drowning. If you take only the last weekend with the new vulnerability that came out, the PHP 2.0, it means that instead of doing their actual work and making sure that they're safe, they need to sort of chase these vulnerabilities around the network and we have to automate that and we have to do it in a preemptive way. And I am proud to say that when you look at our customers in the last weekend, they were protected before they needed to do anything. So instead of telling them, go and fix that, we told them there was a problem, but we already fixed it. And that's where preemptive security is going.

All right. Next up is Joshua Tilton from Wolf Research followed by Jenaid Sidiqui from Truist.

Hey guys, thanks for taking my question. A lot of moving pieces that I'm hearing on the call and I'm just trying to understand all of them at once. It sounds like in the beginning you opened up with the quarter was in line with expectations, but you're also trying to give us this message that the recovery that you're expecting is taking a little bit longer than you initially anticipated. So I'm trying to understand... What exactly changed if we just had an inline quarter that the recovery is now taking a little bit longer? And then maybe to put kind of a finer point on Shrenik's question, is the recovery taking longer because you guys are just executing at a slower pace than initially anticipated? Or is the recovery taking longer because priorities are changing in real time and maybe the demand for firewalls is not as there as you initially thought it would be?

Well, I'll start with the second question and Roei, you can take the first. So absolutely the latter. We actually see demand rising and now it's on us to be more competitive, to be out there and to execute better. So to your question, in July, we spoke about hiring a couple of hundred, even more new salespeople. The process itself, Thank you very much. So from where I sit, it's absolutely the latter. I think we know what our customers are looking for. I think we have more relevance in terms of the portfolio and going forward as we start implementing and, you know, making our vision and strategy come to fruition around the connectivity and going into preemptive security, I actually think that it'll become easier for us to grow faster.

And to your question on the recovery that will take longer than what we anticipated. So I remind you, when we talked back then in the beginning of August, when we announced our earnings, we did say that we do see Very strong funnel, qualified funnel for Q4 back then when we announced earnings. When we are looking today, so still we do see qualified funnel stronger than what we had last year, but the magnitude is slightly lower, again, because of several factors. One, this funnel included a lot of significant large deals, several of them being pushed to next year. I can tell you that these are mostly with existing customers that Working with us closely, we are engaging with them. They had a very significant refresh project that was supposed to be this year and was decided to move it to next year. They renewed their business with us. Everything is in line. But just in terms of doing the refresh, they decided to do so in 2027. So that's how we see. Of course, also Q4 is a more back-and-loaded quarter. So there is a back-and-loaded quarter which involves a lot of product bookings and revenues. And we took into account when we provided you the guidance.

Makes sense. Thank you.

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

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

I believe so. I think that, again, this is sort of the irony of the situation. There's still the traditional trajectory that we'd seen over the last few years, but AI, sovereignty around data, independence around using models is shifting, and also take into consideration that cost The cost that's attached to using these amazing technology is also becoming a huge factor. And so I do think that the trend is changing. I do think that network security, modern network security, doesn't necessarily mean what it meant a couple of years ago. It also means a sovereign data center. It also means running open-weight models locally, sometimes because of sovereignty, sometimes because of the need to remain independent. and many times for a lot of our customers, it's about the cost that comes with it. And traditionally that's where we have a lot of strength. And now as we're moving into the preemptive security and bringing exposure management and modern network security together, I think we can prove that they're very, very relevant. And to add to that, we can do it, Thank you.

All right, next up, Saqib Khalia, followed by Brad Zelnick.

Okay, great. Hey, guys, thanks for taking my question here. Roei, I'd love to dig into just some of the moving parts as we think about margins for next year. I'm not looking for a guide here, but go with me for a second. Very helpful detail on FX, right? I think incremental $50 million in headwind from the shekel was something that we were all wondering. You'll also presumably have a full year's impact of the sales investments next year as well. So maybe beyond FX, how do you think about the impact of sales investments for next year And just as importantly, how do we think about maybe the returns that those investments could generate?

So, again, margins-wise, in terms of specifically margin, we're going to share with you, of course, in February when we're going to announce. Also, we're going to have Analyst Day in Vegas, but we're going to announce our earnings close to this Analyst Day, so we're going to announce also our guidance for next year. But you're right. I mentioned the FX first. The FX has incremental impact. Again, according to the current FX rates, I mean, it keeps changing. Of course, we are edging. We have a rolling edge, but still edging. It can be changed, but it's right now around $50 million incremental for next year. Looking at our margin next year, I can tell you that again, we're going to have very high margins. We're going to have high margins. It's very tough to tell you now it's going to be what margins will be. It really depends also. Let's be honest on our top line. How we finish Q4, what's going to be the backlog for next year in terms of top line. So in the end, the margins is also as a result of the growth in the top line. So all of these factors will take into account when we will share with you the guidance for next year and we'll talk more about the margins on that aspect in February.

And just to add to that second, take into consideration that the way we make our investments is also changing. Many of the things that we used to do in one way are now being automated. So we can also shift investments. One of the things that we want to do is become an AI-first company. One, because it's the right thing to do and change the culture and move ahead of the gang. But also because we really, really need to be at the front line of using AI to understand the security implications and to understand what it means to have a real AI transformation with security for our customers. And so the blend is also changing, but you're right. On the sales side, the investments are going to take us to the full year next year, and we have to take that into consideration in our margins. Very helpful. Thanks, guys.

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

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

The one thing that I will say is that we're looking at sustainable and gradual growth, right? The investments that we made this year, for example, we're going to double down on next year. Security for AI is one example of a capability or a product that we believe is almost existential for our customers and hence for us. And it goes into two buckets, right? The first one is a product that is security for AI. So for example, the one we spoke about, the electronics company, right? So to deploy AI security for over 80,000 employees with the best-in-class security is not easy. It takes a lot of investment. and we expect that to grow as a pillar or a solution in itself. But at the same time, these capabilities become a part of everything else that we do. And so a lot of these investments are just there to keep up with what the attackers are doing. Again, going back to last weekend's vulnerability around the PHP 2.0 cell, If we are going to stay in the reactive mode, I think we're going to lose. Remember, at the end of the day, it's a competition between offense and defense. And what we're seeing is a vulnerability apocalypse, if you like. The only way to stay ahead of that is to be able to thin the stacks and proactively, on the one hand, dramatically lower the probability that it will happen. So when there is a vulnerability, when there's a new attack vector, and some of them are almost unimaginable, we already have the mitigation in place. and second is to hold the line to make sure that when the attack does come, we can block it in runtime, in real time. And so a lot of these investments are going there and obviously the proof is in the pudding and we're expecting to see some of that pudding in 2027 and beyond. And to your question about acquisitions, You know, it's also a strength, right? The fact that we can continue to make these acquisitions, the fact that we are in the epicenter of the cyber global innovation is sort of an advantage that we need to take advantage, that we constantly want to leverage.

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

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

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

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

I'll take the first one and then if you want to talk about the traction. But no, it's not part of the three points. Actually, the AI firewall is a different package, subscription package, that it's an upsell that can be sold to our customers. But that's not part of the 3% increase. The 3% increase is the price increase, sorry, that we are talking about specifically for firewall subscription packages that we have to do, not related to this AI Fireworld, which was not part of that. Nadav, we want to touch base on the traction.

I'll say that there are a few things that we need to do in parallel. Number one is, and we've spoken about this extensively, and that's one of our still biggest challenges, is going out to the traditional network security and beyond with our full portfolio and going on offense to start getting a much bigger portfolio and many more. but a lot of them are different. So for example, if you think about NEO clouds that are competing with the traditional hyperscalers as an example, they're offering different capabilities. It goes a little bit back to sometimes to what we spoke about before about sovereignty and running open weight models, et cetera. And it also means that you need to run different capabilities. I think in one of our talks, we spoke about the fact that in some cases it actually means that we need to be a part of the hardware level That's some of the collaboration that we're doing with NVIDIA because we're talking about massive amounts of data moving east-west, especially when you're talking about training. Different kinds of data that is moving, a lot of it is AI-related, a lot of it is encrypted. New capabilities are something that we need to build for network security, but way beyond that. That's what we're focused on.

Alright guys, thank you very much. It was great. We'll look forward to seeing you all through the quarter. Alright, thank you. Thank you. Thanks guys.