Check Point Software Technologies' Management Presents At Citi Technology Conference (Transcript)

Check Point Software Technologies Ltd (CHKP)

Citi Technology Conference Call

September 05, 2012, 09:00 am ET


Tal Payne - CFO

Kip Meintzer - Global IR


Walter Pritchard - Citigroup


Walter Pritchard - Citigroup

We are ready to start. We've got the 9:00 am session here, second day of the Citi Global Tech Conference. I am Walter Pritchard, software analyst; happy to have with us this morning to kick it off Check Point Software. The company, I think in my universe, the longest if any; it’s about 12 years. We’ve got Kip Meintzer, who is the Global Head of Investor Relations and we’ve got Tal Payne, who is the CFO. I think Kip is going to kick it off with some Safe Harbor and then we will go into some Q&A and I'll leave then room for questions.

Kip Meintzer

Alright. So, we'll start off by highlighting forward-looking statements. Regarding any forward-looking statements in the course of the presentation, obviously are subject to risk and uncertainties that company takes no duty to update any of the forward-looking statements maybe made are covered by the Securities of Exchange Act of 1934.

And with that, I'll talk it back to Walter and there we go.

Walter Pritchard - Citigroup

Alright, thanks. So I guess we're sort of asking every company here, we’ve all come back in September you know what have you seen in the world anything you would like to update folks on what's happening globally and people I think are pretty mindful of especially the conditions in Europe; your perspective on that?

Tal Payne

In reality, I think people enjoying their vacations. That’s all we know about this quarter for now, because Europe just came back from vacations. And for our business, still back end loaded as you know that we really see (inaudible) products and services, obviously we have a lot of it coming from the previous deferred revenue. But really booking doesn't start until the last month which is September which just started. So if you ask me but the end of the quarter, I'll be encouraged to tell you. I don't see any implications for anything else therefore the people still could afford vacations.

Walter Pritchard - Citigroup

Just from a business perspective if I look at your growth rate in the first half of 2012 and I compare that to what it was in 2011 and maybe I don't worry about revenue recognition and what's deferred and was recognized I am sure something like billing as the proxy for growth and the growth is rate slowed by you know five, six points something in that range. What do you attribute that difference in growth rate to and how should we think about more of the longer term rate of Check Point is it more like what we saw in 2011 and more like what we're seeing in 2012?

Tal Payne

Sure. Firstly, we believe we’ll grow faster than the market and we still believe that we’ll grow faster than the market. What's happening to us this year, this will be analyzed according to what's happened specifically in the product line that we launched. So historically when we launched the Software Blade architecture, we saw is what you referred to we had a shift from product revenue into service revenue, so in the billing you saw quite accelerated growth rate because it slowed down the growth of the product, you can see very clearly last year while it increased the deferred revenue growth a shift as a result of the software blade, the annuity software blade.

By the time we sold the product, part of the product revenue is deferred as a result of its relation to the software blade, annuity blade plus the deferred revenues are recognizing into the service, so that’s part of the phenomena of 2010, 2011.

At the end of 2011 which is last year, we launched a new product line which is end to end from the lower terms to the high end for the appliances where the philosophy was we are going to keep the same price level, tripling the throughput. The reason was that we wanted to increase the throughput in a way that allows the customer to get higher throughput and in the future adopt all the different annuity blades.

The reason is one of the biggest growth engines for Check Point for the future is the annuity blade; all the additional services that we sell on the clients, Antibot, the URL filtering, the DLP, all the services that are part of the client and then when we launch the new product that’s how we price it; when we came into the year which is when we started the sale, we noticed one thing, first we have a significant increasing the number of units that we sold already from the beginning of Q1 we saw more than 20% increasing the number of units that is very unexpected, (inaudible) is all in the mature business…

Walter Pritchard - Citigroup

Especially higher unit growth within the product line?

Tal Payne

Significantly higher in the number of units that we sell and that’s why we provided that data because it was even beyond our expectation. So the number of units increased significantly which means that the products are very competitive out there in the market that’s one indication that was out.

Second indication is that the acceptance was so fast that the move from the old product line to the new product line that we launched was so fast already in Q1 we were around 80% of the new client sales came from the new appliances continued also in Q2 to increase so over 80% of the clients in the new appliance so great acceptance.

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