Check Point Software: Balancing Stability and Transformation

Speaker 1:
Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Shaul Eyal:
We're at the TD Cowen's 54th annual TMT conference and it's my pleasure to host Kip Meintzer, global head of IR for Check Point Software.
Kip Meintzer:
So happy to be here, Shaul.
Shaul Eyal:
I want to kick it off with a macro environment. Lots of moving parts, AI, global unrest, geopolitical uncertainties. How does that play into Check Point's strategy going forward?
Kip Meintzer:
So I think if you look at the basis for our results in first quarter, it really had no basis at all in our results. This was self-inflicted. What we had chosen to do was implement some go to-market changes, re-architect our sales force to better be able to achieve the potential double-digit durable growth that we're looking to have in the future. And in order to do that, we needed to focus more on the enterprise and more at chasing after new logos so we could expand our growth opportunities in a very big way. When you look at the world in its whole, including AI and how it's the effects of memory, pricing of the bomb, et cetera, I think we've already covered that as far as the one percent headwind for the gross margin. On the geopolitical side, to be honest with you, I think it's a flat line noise.
I think if you look at the market, it pretty much has ignored it so far. I don't think there's really any impact to Check Point in any way or the technology industry in any way. I think the biggest impact out there is probably headlines related to AI and the boogeyman in the corner when it's there, whether it's the Mythos or the open AI models and the potential they have in the wrong hands to create problems. But I think that's all a benefit for us because it creates an importance around security and what we do in securing the AI transformation of our customers.
Shaul Eyal:
As we think about some of the go to market changes that you guys have implemented, can you outline some of those for us?
Kip Meintzer:
So one of the first things we did is we took all of the mid-market accounts and handed those to our inside sales for renewals and to the channel to chase after new opportunities. We took those salespeople and moved them up to the enterprise account level, reduced the number of accounts per account manager. And then we hired and reallocated some folks to do hunting. So now we have a real hunter farmer model when it comes to the account management of the enterprise. And then we have the specialist sales around each one of our pillars. So that was the primary focus there and that's to be able to really give the attention needed at the enterprise level to be able to cross sell, upsell, and really stay on top of those individual accounts and make sure that we're getting the most out of those accounts, expanding our footprint wherever we can.
As far as hunters going after new accounts, look, that's probably the most important thing for our growth in the future is adding those new accounts so we can expand not only from a hardware aspect, but also each one of our pillars.
Shaul Eyal:
As we think about the split between product and subscription, back to your initial comments about it was self-inflicted for the most part. On the product front, we're seeing many companies benefiting from this data center built out and you guys pretty much lived within the data center. How should that manifest itself as we think about second quarter and most likely second half of 2026? And at the same time, the subscription line has remained very stable.
Kip Meintzer:
So I think if you look at the pipeline and what we've talked about, we continue to see a building pipeline. In fact, our pipeline where it is today is ahead of where it was a year ago. So we see lots of opportunity, but now it's about execution. And as far as data centers, you're right, that is where we live within most organizations. We've also seen some success in the AI factory. We've seen some success there and we've seen some success with new logo opportunities, or I should say win backs that we've had from past customers. So data center is the place we live. And I think if you look at the pipe that we're looking out through the end of this year, there's a benefit of data centers within that pipe.
Shaul Eyal:
As we think about the expanding platform in the context of your SASE, CTEM, email, AI related solutions, those actually have shown good results, good growth rates thus far. What are the plans on going broader within this platform?
Kip Meintzer:
I think in each pillar there's room to grow. You've seen us do it in each of the last two quarters. We've acquired value added segments to each. I think it was the CTEM pillar and also our AI pillar. I think there's always an opportunity to find things that can add more value and provide more breadth to each one of our pillars. I think the opportunity that lies ahead, especially with each one of the pillars is for tremendous growth. AI hasn't even been scratching the surface yet. That one is early days as far as revenue. So the potential there is quite great and CTEM is probably our fastest grower at this moment. Last quarter we talked about it growing year over year by 96% in ARR. It almost sells itself. It's like a product that once people see the exposure that they have, it's almost like they're ready to sign at that moment.
So we think there's a lot of potential with each one of those categories and we've only scratched the surface as far as our own install base and even going after new accounts. So it's pretty bright across all three of those pillars.
Shaul Eyal:
You've recently also announced a two billion extension to your remaining buyback plan. Do you think we will be seeing that same clockwork-like quarterly performance on this buyback or would you be slightly more opportunistic given what shares are trading right now?
Kip Meintzer:
We had still some leftover from the original expansion, the last two billion dollar expansion. So this quarter, you'll probably see up to 325 million, but beyond that, when we're taking advantage of the new expanded two billion dollar authorization, there is really no limit on it. So it will be opportunistic and it'll be whatever's in the purview of the treasury team.
Shaul Eyal:
And as we think about the close to two billion of zero coupon convert that you guys rate late last year, how should that manifest itself? M&A, tuck-ins, bigger buybacks? How should investors be thinking about it?
Kip Meintzer:
I think the first thing it manifested itself in is just, this isn't your daddy's Check Point. We've never had any debt in the history of the company. So this really told a new story for the company, a more willingness to look at larger opportunities on the acquisition front. Doesn't mean we're going to chase things on that side, but if they present themselves, we want to make sure we have the actual gunpowder to go after it. And so I think if you really look at it, it's given us a lot of flexibility so we can buy quite a few smaller ones that if you look at AI, AI startups usually cost a little bit more. So it's just given us a lot of flexibility and there's nothing wrong with having flexibility and it came at a nice price, right? Zero coupon doesn't get much better than that.
Shaul Eyal:
Kip, thank you very much. Appreciate the time.
Kip Meintzer:
My pleasure, Shaul. It's always, always a pleasure to be here. Thank you.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.