Check Point Software Technologies Ltd.
Q4 2013 Earnings Call Transcript

Published:

  • Operator:
    Greetings, and welcome to the Check Point Software Technologies Fourth Quarter and Fiscal Year 2013 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kip Meintzer, Head of Global Investor Relations for Check Point Software Technologies. Thank you. Sir, you may now begin.
  • Kip Meintzer:
    Thank you, Jess. Good day, everyone. I'd like to thank all of you for joining us today to discuss Check Point's financial results for the fourth quarter and full year of 2013. Joining me on the call today are Gil Shwed, Founder, Chairman and CEO; along with our Chief Financial Officer, Tal Payne. As a reminder, this call is being webcast live on our website and is being recorded for replay. To access this live webcast and replay information, please visit the company's website at checkpoint.com. For your convenience, the conference call replay will be available through February 4. If you'd like to reach us after the call, please contact Investor Relations by emailing kip@checkpoint.com or by phone at +1 (650) 628-2040. Now before we begin with management's presentation, I'd like to highlight the following items
  • Tal Payne:
    Thank you, Kip. Good morning, and good afternoon to everyone joining us on the call today. I meet you once again to begin the review of a great quarter. Our revenues for the fourth quarter increased by 5% year-over-year with a 19% sequential increase in deferred revenues. Non-GAAP EPS grew 8% to $0.98 at the top of our guidance. Before I proceed further into the numbers, let me remind you that the fourth quarter and full year 2013 GAAP financial results include
  • Gil Shwed:
    Thank you, Tal. I'd also like to thank everyone for joining us on the call today. I'm very excited with this quarter results. This was a spectacular quarter. We outperformed our goals and delivered sales results that are reflected in our customer wins and deferred revenues that we haven't seen for more than a decade. We've seen strength in many areas. From a product perspective, our data center appliances performed extremely well, led by our new 21700 Appliances and the 13500, which was launched just in Q3. Our 61000 super high-end appliances also had a record quarter. Software blades continue to perform very well with growth accelerating in the fourth quarter. Much of it comes from our next-generation threat prevention software blades package. We continue to focus on expanding the depth and breadth of our security technologies with additional software blades. In 2013, we launched the Threat Emulation software blade, which is powered by our cloud service. The Threat Emulation blade discovers new threat which are not discoverable by other existing technologies. This is accomplished by opening incoming files in a secure environment and analyzing their behavior automatically. Earlier in the year, we launched a new generation of our small business and branch office appliances, the 600 and 1100 Series Appliance received amazing review from industry observer and have been enthusiastically embraced by customers. This has resulted in a very strong growth trajectory since their launch in Q2. We've also delivered our latest release of software, the R77, during the year and just now, the R77.10 update. This version includes more than 50 product enhancements, including the new ThreatCloud Emulation Service, Check Point HyperSpect performance enhancing technology, Check Point Compliance Software Blade, mobility, virtualization amongst others. We continue to develop and introduce new and innovative threat prevention solution. In addition, we continue to expand our offering in the data and mobility area. We believe that cyber threats and mobility are 2 of the most important areas in security these days, and we intend to provide leading technologies in these areas to keep enterprises secure worldwide. This brings me to the financial outlook. To your normal regular caveat, it is always hard to predict the future. There are many factors that should weigh in. The increased need for cybersecurity is an important factor, yet at the same time, the economy can warrant a more conservative approach. As always, we take a realistic approach that has risks in it, as well as potential of upside. For 2014, we expect revenues in the range of $1,440,000,000 to $1.5 billion and non-GAAP earnings per share in the range of $3.50 to $3.70 per share. GAAP EPS is expected to be approximately $0.32 less. For the first quarter, we expect revenues in the range of $330 million to $350 million and non-GAAP earnings per share in the range of $0.79 to $0.86 per share. GAAP EPS is expected to be approximately $0.08 less. I just want to repeat again the guidance for the year. The revenues are expected to be in the range of $1,450,000,000 to $1.5 billion, and the non-GAAP earnings per share in the range of $3.50 to $3.70 per share. Thank you, and I would like to open the call for your questions.
  • Operator:
    [Operator Instructions] Our first question is coming from the line of Gregg Moskowitz with Cowen and Company.
  • Gregg S. Moskowitz:
    Looking at some of the deal metrics, the deal sizes over $50,000, the deals that were over $1 million, that clearly went up into the right and it sounds as though data center appliances are taking more hold. What I'm wondering is if this is, in your view, more of a seasonal uptick where that might revert in 2014 or if you think there's some sort of change or shift in the buying behavior from customers.
  • Gil Shwed:
    I think it's hard to predict the future, clearly, and I think that's not all of it reflected in the numbers. We had a very good Q4. I think some of it is attributable to the fact that we've worked throughout the year and delivered amazing wins, I hope, which is a good sign for the year to come. I mean, we just had our sales kickoff meetings in Europe and in the U.S. last week and this week. And I think the overall atmosphere, they're quite positive. On the same time, I don't want to be overly optimistic, and I think we are not changing gears our guidance or predictions beyond the overall rates that we've seen throughout last year.
  • Gregg S. Moskowitz:
    Okay. And then I realized it's somewhat early, but with Threat Emulation, what trends are you seeing so far in terms of deployment? For instance, is it more enterprise or mid-market? And also, which verticals or geographies are moving forward thus far?
  • Gil Shwed:
    I think it's too early to say. I think in terms of sectors, we've seen -- all sectors, we've seen relatively high-end customers deploying it so far, and I've seen all the sectors. Again, manufacturing. I mean, everything -- I mean, all the different companies. But again, I believe it is too early. Unfortunately, it takes the market, from my perspective, too long to ramp up. And after 1.5 quarters, it's still too early to give statistics that will be meaningful.
  • Tal Payne:
    I would just add that, if you remember, we launched the Anti-Bot somewhere in the middle of last year and...
  • Gil Shwed:
    2012.
  • Tal Payne:
    2012, yes. And I mean, we've seen it in the last 3 quarters really increasing nicely and already crossing a few millions of dollars a quarter. So it takes some time to start to see results of the new technologies.
  • Gregg S. Moskowitz:
    Okay. And if I could just ask one more, either of Gil or Tal. Since 2014 is already shaping up to be an inquisitive year in security, I'm wondering if you could update us on your thoughts of the M&A landscape and whether Check Point might look forward -- might look to move forward, excuse me, with an acquisition this year.
  • Gil Shwed:
    I mean, we do look forward for that and I think we're investing more resources now than ever in finding the right target. It's not easy to find the right company. There are many interesting companies and many interesting technologies. Very few often fit well to our portfolio and fit well to scaling into very large number of customers. I am very proud, however, in what we already have. I mean, if we look at our new technologies and our ability to deliver innovative technologies, there's a huge room for growth to get our customers to deploy it. I mean, look at our Anti-Bot technology. Many hot start-ups in the cyberspace are hardly delivering what we are delivering with the Anti-Bot. The Threat Emulation that we have shapes up to be very high quality. We just ran some benchmarks and got amazing results when we try to do some really advanced comparable testing against some of the most known in the other competing offers from others and our results. We're really, really much better. I think we'll, in the next few weeks, we'll probably publish some of that. So I think that beyond -- I mean, yes, I'd like to acquire some companies and we are looking at that heavily. On the same time, I think we have a lot of potential by reaching more of our customers with our own technologies that are already in the marketplace.
  • Operator:
    The next question is coming from the line of Michael Turits with Raymond James.
  • Michael Turits:
    Can you make a couple of comments on thoughts on expenses going the year? Obviously, getting back into it somewhat from your EPS guide? But you mentioned something about the FX impact. Can you walk through what you think the FX impact on expenses will be and also where you might be investing more from an operating perspective as well?
  • Tal Payne:
    Sure. So first, we spoke about it already from the middle of the year that we invest -- we continue to invest and invest more in sales, R&D and technical support. You already see it in Q4, some of the effect, so that's like regular, ordinary course of business. In terms of the dollar, it's already affected us already in 2013 in a more minor way. And when I'm looking at the current rate for the dollar against the currencies that are relevant to us, then I said it's approximately $5 million effect on our expenses on 2014. So that's like a $0.02, $0.03 or so, right? That's the effect of the dollar. And in the taxes, if you remember last quarter, I told you the taxes should move up in about 3%. The good news, it's now steadily moved up in about 1%. So that's the 2 update that I gave this quarter regarding next year. So taxes should be around 20%, 21%. Dollar effect is at $0.03 or so. So far, based on the current rates, I don't know what will happen with the rate. If they improve, it will improve our situation. And if it will deteriorate, then it will increase our expenses.
  • Michael Turits:
    Okay. If I could -- a fundamental follow-up. Just could you talk a little bit about your entrance into -- to incremental markets to an extent, both the SMB market and the carrier market, which you talked about a little bit in the past?
  • Gil Shwed:
    I think we are in this market, but I think we have a lot more potential in both. In fact, we are investing a lot more in them. We started a new sales organization for the SMB market, and we are doing all the right work now to stop it and give dedicated people that will focus just on the right distributors and resellers for SMB and give them the right attention. We are assigning more executives to the telco space, so we'll have the right level of relationship with the account on a worldwide basis. And I think I see a lot of potential in both of them. And we had some success with the 61000 in the fourth quarter that's reflected in that. And clearly, I think we are seeing some already early success with the low-end 600 Series and 1100 Series at the low end of the market.
  • Operator:
    The next question is coming from the line of Sterling Auty with JPMorgan.
  • Sterling P. Auty:
    So on the product side, the strength in the data center, can you walk us through how much of that is upgrade replacement sales of units and how much of it might actually be greenfield as enterprises or other might be building out additional data center capacity?
  • Tal Payne:
    Yes. So I said it's usually low but a lot of our sales are coming from our existing customers, be it refresh or selling, upsell expansion of networks. The SMB unit that we talked about, the 600 and 1100, many of them are new opportunities with existing customers that are putting us also in the remote location and not only in the head office, that's one comment. And second, we see quite a lot of new wins in a competitive environment that we are replacing our competitors.
  • Sterling P. Auty:
    Okay. And I want to touch upon the share repurchase. So at $200 million a quarter, it seems like you're barely spending more than the cash flow that you just generated in 2013. I thought the opportunity in the tax program in terms of the settlement was going to give you a preferential rate to actually do something incremental with the cash on the balance sheet. At this rate, you're not actually taking down the cash balance at all. And with $3.6 billion, that seems like much more than what will be needed for any particular acquisitions that you might be doing. Why not do something even more incremental like maybe even a onetime share repurchase for $500 million or $1 billion on top of what you just announced?
  • Tal Payne:
    Sure. So I'll remind a few basic things that are leading us in those decisions. Number one, goal for our cash is to enable future growth of the company and M&A. So we haven't seen M&A in the past, we might see in the future. As you can see actually from valuations in the market over time, the valuations are going up and you need more cash to be able to have M&A, assuming it's fitting to the company's strategy and future growth. So that's number one goal for our cash. Number two, which is in line with our behavior since 2003, we would like to bring back shareholder value through buyback/dividend. Majority of our shareholders prefer buyback, that's why we continue with buyback. We moved from $200 million to $300 million to $0.5 billion and now up to $800 million a year, which is quite a significant increase. It's pretty much in line with the operating cash flow, you're right. And we think that's the appropriate use of cash for the company.
  • Sterling P. Auty:
    Okay. And maybe last one to slip in. You mentioned the 600 Series and the work in the branch office and also into the mid-market. Do you feel that effort is fully staffed at this point? Or is there additional investments that you plan to make in 2014 to broaden it out?
  • Gil Shwed:
    It's definitely not fully staffed right now. We intend to hire many people to strengthen that. I think we can do more. And I think we plan to hire a lot of people to help in that.
  • Operator:
    The next question is coming from the line of Aaron Schwartz with Jefferies.
  • Aaron Schwartz:
    I just had a question on the guidance to play devil's advocate here. If we look at the deferred revenue growth here over the last 12 months, it was very strong at about just under 14%. Can you just help me reconcile that with your top line growth expectations for '14? It seems like with the growth there, the reacceleration and the deferred growth over the last 12 months, that potentially you could see some more top line growth over the next 12 months or is this just a conservative outlook at this stage in the year?
  • Tal Payne:
    I guess, I would say it's realistic. You're absolutely right that the growth in the deferred is much faster. So yes, it was much faster. And it's not like it's for the next 20 years, it is for next year. You can see the difference between short term and long term. Having said that, Q4 is typically the strongest quarter of the year. So we think we should be prudent and provide the guidance that we believe is realistic, which means it's not the best scenario and not the worst scenario.
  • Gil Shwed:
    And I think we are modeling this quite right. So we are not sandbagging or anything that's unrealistic here. I mean, I do like to think, and I hope more than anyone on the call, that there's upside to what we are doing. But at this point, I can only say that what we've done is based on very, very realistic models and there is no sandbagging or hidden reserves out there.
  • Aaron Schwartz:
    Okay. And I think that I've got a second question. You talked quite a bit about the strength in the data center area and the higher-end products. You also had a strong deal metrics with $1 million plus transaction. Presumably, that is -- or they're correlated with the higher-end products contributing some of the larger deal flow there. The question I have is that given the sequential strength in deferred here, are you seeing, I guess, higher revenue deferral rates on your data center products or your larger product sales? Is that sort of contributing to the seasonality in deferred that's aligned with the larger deal flow?
  • Tal Payne:
    Not really. Majority, by far, like almost all of the amount of the deferred revenues, is relating to update in maintenance and subscription for the software blades, so it's not...
  • Gil Shwed:
    In the software blade, not the subscription for the software. Yes, the software blade revenues.
  • Tal Payne:
    Yes, the software blade, meaning it's not the appliances. The appliances, once they're delivered, they are recognized and that's just...
  • Gil Shwed:
    But still, I mean, the bigger portion of the appliance is in blades. I mean, when we sell an appliance, the appliance include in it several blades. And I think over time, we've seen a slightly higher percentage of the appliance price in the software blades, which means that it is going to the deferred revenue. So that's -- but it's not a very -- it's not a huge amount.
  • Aaron Schwartz:
    I guess that's what I was getting at though. The 21 -- or the 13 -- the higher-end series, the blade revenue allocation on those sales is slightly higher than maybe the lower-end boxes and that is helping the deferred revenue here in the -- with the large deal metrics in Q4.
  • Tal Payne:
    Theoretically, that is right. Remember, it's like a, I don't know, probably between 10% to 15% of the appliance value, right? So some quarters can be 12%, some quarters can be 4% -- 14%. And you're right, it's based on -- depends which appliance is pulled more. So it can change every quarter.
  • Operator:
    The next question is coming from the line of Daniel Ives with FBR Capital Markets.
  • Daniel H. Ives:
    So you have a few resurgence of growth here. How much do you think is related to product cycle, maybe channel execution versus secular just in terms of strong security growth? That's my first question.
  • Gil Shwed:
    I don't know how to answer it. I think we've had a good pipeline into -- in the fourth quarter. A lot of it was generated throughout the year. And I think we've outperformed even our own pipeline in the fourth quarter. I don't think that there was anything too cyclical around that. I think it may be things that are going -- that are more big year and back-end loaded. I think it may be just, I think, good competitive wins. I think from -- if you look from the -- during the quarter, we had both examples, but I don't know how to measure it.
  • Daniel H. Ives:
    Okay. And then in terms of M&A, is there more of a sense now that you'd be willing to maybe pay out for an acquisition? Obviously, you've been very disciplined from a valuation perspective. But in terms of M&A, is there a little bit of different mindset going into 2014, just given that now growth looks pretty consistent in terms of the core business and you guys, obviously, have more cash in some countries?
  • Gil Shwed:
    I think in the M&A perspective, we are looking for the right opportunity. I think clearly the valuations are not low. But the main thing is something that will give us either a great technology that we really want or a nice growth that will complement our portfolio. I think what we've learned throughout the year is that we need to find very good synergy with our customers and with our product line, and just acquiring technology because it's good or because it carries a nice revenue but without the real synergies doesn't work for us. But again, we are looking in a wide range and we may surprise ourselves. Not that I expect that, but I'm looking it in a very open way. Not that we are a -- that we have any complicated formula, but nothing fixed.
  • Operator:
    The next question is coming from the line of Brad Zelnick with Macquarie.
  • Brad A. Zelnick:
    Gil, how do you think about your need to be on the endpoint, especially in light of FireEye buying Mandiant. Does that change your thinking at all?
  • Gil Shwed:
    I don't think that changes much. I think we're actually looking today on the endpoint, and I think we want to take different approaches to the endpoint. I think the endpoint per se market of the -- and the huge market, there are 90-some percent of the market is the antivirus. That's a different market and I think our focus shouldn't be on that. I think we have other ideas on what we can do on endpoint. It can be small agents that connect to our cloud service, which is something we are starting to launch with veil [ph], a very soft launch, but that's something that we're starting to do. It can be -- so I mean, my direction would be looking more at the data security side, on lightweight agents and to provide more security to endpoint through the cloud, which is the general direction that I look -- as I look at endpoint.
  • Brad A. Zelnick:
    And just a quick follow-up for Tal. You might have mentioned this already and I might have missed it. But the cash payments to the Israeli Tax Authority in the press release, you talked about there being a follow-on payment in Q1. Just for our models, can you tell us how much that -- you expect that will be?
  • Tal Payne:
    Slightly over $100 million.
  • Operator:
    The next question is coming from the line of Keith Weiss with Morgan Stanley.
  • Keith Weiss:
    Following on some of those large deal metrics with 72% of revenues from deals over 50k and the good deals metrics on deals over $1 million, can we take that to more broadly talk about increasing ASPs across the board? Or was that just more of a barbell effect with large deals?
  • Gil Shwed:
    I believe, Tal can correct me because she knows better the number, what I've seen is the slight increase in ASP, not a big increase in ASP. But we do see larger deals between the more products per deal and more products per customer.
  • Tal Payne:
    Yes, I would just add that remember that the software blade initiative that started in 2009 is very successful, which means existing customers are purchasing more products from us. So the total cost of a transaction with a customer increased. So while ASP can stay the same or slightly increase or slightly decrease, this depends on which appliance they chose, whatever software blade they put on the bucket, the material parts of the ASP of the long term of the customer. So you see software blade is very successful. It's already 25% of our update and maintenance and subscription lines. 25% is quite a lot, it's 1/4, which means it's a very successful. Therefore, the deals for the customer as a whole is increasing.
  • Keith Weiss:
    So software blades are increasing ASPs, but slight increasing ASPs?
  • Tal Payne:
    Total ASPs. It's the size of the transaction we are having with the customer.
  • Gil Shwed:
    It's not how we measure it. The ASP, we usually measure on the first-time buy around the cost of the appliance. Remember, we had a year that it was going down actually. This year, it went up, so that's a good thing. On top of that, the following year, the customer is going to buy more subscription and more for the software blades, more software blades, to renew the software blade or just buy brand new software blades. So the total customer value is going up. And I think at the end of the day, if we look at how many dollars the customer has spent with us 3 years ago versus now, the numbers clearly went up and maybe even went up significantly as a result of the software blades.
  • Keith Weiss:
    Got it, excellent. And then I was wondering maybe you could talk a little bit more broadly about the competitive environment, the change that we saw in 2013 and how you're thinking about it in 2014. As there was some significant M&A in the space with Cisco buying Sourcefire, like a previous caller says you saw FireEye buying Mandiant, FireEye has definitely come up in a lot more conversations and has been seeing some pretty good growth. How do think of the competitive environment going into 2014? Do you see this significantly changed?
  • Gil Shwed:
    I don't know if it changed. I think, clearly, 2013 was interesting, in fact I haven't seen personally a lot of changes as it relates to us. I think the FireEye, not just the FireEye acquisition, but the FireEye IPO clearly shows that there's a lot of potential in fighting threats. We see some of that and you can see some of that in our software blades line. The software blade, big, huge portion of it, the majority portion, I think, is fighting new types of threats, and it's bigger than the FireEye business. Now FireEye clearly demonstrates that even in niche markets of the subsegments, there's a big potential. And I think we need to show to the market that we have very good technologies in that space, and we do. I mean, we came up with that in the middle of the year. And I think the competitive benchmarks that we have are showing amazing results. Once we publish that in the coming week, I'll be happy to share it and I think very, very good signs for us. We still have a lot of work and I don't think it's trivial to market it to our customers, then that's a challenge we always have.
  • Keith Weiss:
    Excellent. If I could sneak one last one. As part of -- it sounds like you're talking a lot about investments on this call probably a little bit more so than what we've heard on prior calls. Is part of that, like you're saying, do you guys have really good technology in-house that competes with some of the more louder names in this space, let's say, and you're looking to market a little bit more aggressively in the year ahead?
  • Gil Shwed:
    Absolutely. I think it's a correct assessment.
  • Operator:
    The next question is coming from the line of Matt Hedberg with RBC Capital Markets.
  • Matthew Hedberg:
    In terms of Application Control, it sounds like it was an important component of 4Q components. And I guess, with the largest application library in the industry and competitive price points, is there a way to think about how penetrated your installed base is with Application Control?
  • Tal Payne:
    It's actually quite early both. I think the #1 blade in terms of penetration is IPS and then Application Control and then a lot of them with similar sizes like antivirus, anti-spam, URL filtering and so on. But it's still a -- I mean, out of our installed base, it's probably in the low tens of percentage, right? So there's still a huge potential there.
  • Matthew Hedberg:
    That's great. And then as a follow-up, identity theft has been, obviously, all over the headlines recently, and Gil, in the prepared remarks, you talked about that and mobility as a key focus for Check Point. I guess, in your minds, why are all these breaches taking place? Is it really, as an industry, is it a technology issue, a security management issue? And are you seeing increased demand based on these breaches in the breadth of your portfolio?
  • Gil Shwed:
    First, I think the recent attack, which we've seen, are very sophisticated attacks. Well, for example, usually traditionally you might say an enterprise should protect its database or its data center. The last huge attack that we've seen on the U.S. and I won't name names here, but it didn't happen on the main databases. It happened on the -- on POS machines in branch offices, which actually strengthened the need to -- for a company to have a unified and a global strategy for its security and not just point products or even good technologies that's protecting its headquarters. I think what we're seeing from the hacker's perspective is clearly smarter hackers doing sophisticated attacks. This is not just a small Trojan horse or a worm that screams I'm here and cause some damage. This is a multistage attack with a collection of data, with infiltration of system, with taking data back and so on. And I think there are good answers to that. But I think it takes customers -- let's put it that way, it takes our industry more time than we'd like to provide a technological solution, but it's probably taking our customers much more time to deploy the technology or require the technology than we would like. Unfortunately, what I see is that for customers to deploy a new technology, it takes between 1 year to 3 years. And I think the hackers don't really give us the leeway. They don't wait for 1 year to 3 years until they use the new attacks. They are developing new attacks every day.
  • Operator:
    The next question is coming from the line of Rob Owens with Pacific Crest.
  • Rob D. Owens:
    Tal, you talked about a $5 million hit in 2014 due to FX. Can you remind us what the impact was in 2013?
  • Tal Payne:
    I think it was slightly less, a few millions of dollars. Remember that we had a hedge also last year so the net effect was slightly less, probably $2 million, $3 million. And for next year, obviously, we're going to -- we will probably going to hedge next year like 2014 as well, but the hedge is already from a low number. So based on the current rates, it's around $5 million effect. It's net effect. On the Israeli shekel, it was significantly more. But some other currencies reduced it slightly, so the net is around $5 million, $6 million.
  • Gil Shwed:
    And I would add one thing, Tal can do the calculation, but unfortunately, the effect so far is cumulative. So basically, if I look at the effect on the last 2 or 3 years, probably getting close to $0.10 a share just from the currency effect.
  • Rob D. Owens:
    Sure. And then on the product revenue side, it's been flat for 2 years, I think, on an annual basis, but you're seeing some momentum with new products. How should we think about product revenue growth of 2014 in the context of, I think, about 6% growth at the midpoint of the range?
  • Tal Payne:
    So we didn't provide a split, but I think for now a good assumption is an even split between the 2, between products and update and maintenance.
  • Gil Shwed:
    And remember, one thing that we have done maybe a bad service to ourselves and confused, even ourselves, with some of the accounting rules, the fact that many of our new products come in the form of a software blade and they are listed under the services line in the P&L. That's something that's accounting, and that's something that -- I mean, in reality, we are selling more technology, more new technology as part of our product and not all the credit goes to the product line.
  • Rob D. Owens:
    Sure. And the blades were impressive, I think, at 28%. But if I back that out, can you help me understand why the services growth is roughly flat to up 1% year-over-year, the service and maintenance component?
  • Tal Payne:
    For the reason that you mentioned, product was flat. And if the product, excluding software blades, is not growing, which is what happened in the last 1.5 years, then you don't get a new subscription. And if you don't get a new subscription, also the update and maintenance is flat.
  • Operator:
    The next question is coming from the line of Tal Liani with Bank of America Merrill Lynch.
  • Tal Liani:
    Most of my questions were asked. I just want to ask you about dividends and the potential for dividends going forward.
  • Gil Shwed:
    I think we are very open to the subject. And you see that we are increasing our buyback program to the old issue of shareholder return. I think from serving our shareholders, you guys and basically the vast majority of investors would like a share buyback and that's why we are increasing the share buyback. Personally, by the way, I'm very open to dividends and I'm really reflecting here the perspective, not of myself, but of the feedback we are getting from our large shareholder.
  • Tal Payne:
    Yes.
  • Tal Liani:
    The second question is about the bookings. I just -- I'm trying to understand bookings were up very nicely the last 2 quarters. Revenues are kind of climbing behind. Is -- when you look at the composition of bookings, is it a lot about the services that will be recognized in a ratable way? Or should these bookings translate into just delayed recognitions of products and blades, et cetera? So that means the -- what you report is products should accelerate over time?
  • Tal Payne:
    It's actually relating to the line of the update maintenance and subscription line. But bear in mind that, by the way, the reason why we don't disclose bookings is because remember, it can fluctuate between quarters. So one quarter, it can be very high, and another quarter, it can slightly lower. And none of them should create over panic or over excitement, right? The other quarters that the deferred didn't move and I told you it's okay because we got the booking a quarter before. I'm not saying that's the case now. We had a very strong quarter. You can see very clearly in the deferred. And you can see both the short-term and the long-term deferred revenues increase nicely. But booking can sometimes be timing. So I think your question, revenues from majority of the deferred revenues is going to the update, maintenance and subscription lines.
  • Operator:
    The next question is coming from the line of Karl Keirstead with Deutsche Bank.
  • Karl Keirstead:
    Tal, a question for you. Last quarter, you indicated that the combination of product licenses and the annuity blades summed to about 8% growth. I liked that metric. If I calculate it for this quarter, it feels like it was about 9%. So I have 2 questions. First of all, do you think that, that high-single-digit growth for the combination of those 2 items can continue near term? And secondly, what's your latest thinking around breaking out the annuity blade lines so we can see it more clearly in the reported numbers?
  • Tal Payne:
    So a, I'll start with the end, it's already going to be broken up in this 20-F. So next year is going to come broken already, that's one. In the 20-F, you have the breakdown, obviously, for the last few years. When it comes to that metric, I agree with you because it's relating to what Gil just said, that if we take the products, including the blades, which is, from our perspective, when we sell a product, we just sell it to the subscription, then the growth of the product is significantly higher than what you see in the P&L, absolutely. And you'll be able to see it from future reports.
  • Gil Shwed:
    You will be able to see the recognition in future reports for sure.
  • Tal Payne:
    Yes.
  • Gil Shwed:
    The actual product sale may be even higher.
  • Tal Payne:
    Yes.
  • Operator:
    The next question is coming from the line of Gray Powell with Wells Fargo.
  • Gray Powell:
    I just wanted to make sure I understood the software blade commentary correctly. You said it grew 28% year-over-year. Was that Q4 or full year 2013? And then how should we think about the growth in software blades in 2014 within the context of guidance?
  • Tal Payne:
    We didn't provide the breakdown, but it's probably going to decelerate slightly as it decelerates every year since you have a lot of renewals coming from past years. The 28% was relating to Q4 versus Q4. Yes...
  • Gil Shwed:
    The rate was quietly accelerated in the fourth quarter compared to the previous 3 quarters.
  • Tal Payne:
    Yes. So it was 28% Q4 versus Q4. And I think we covered your question.
  • Gray Powell:
    All right. And then just one more, if I may. You mentioned endpoint and cloud services. I mean, should we expect you to introduce more of an anti-malware solution into your endpoint product set at some point?
  • Gil Shwed:
    I wouldn't like to call it that way, but yes, we will have more anti-malware capabilities on our endpoint. And some of it may be carried through cloud services and not all through like a big, heavy client.
  • Operator:
    The next question is coming from the line of Phil Winslow with CrΓ©dit Suisse.
  • Philip Winslow:
    Most of my questions have been answered, but I just want to touch on geography. Obviously, you guys saw stable growth here in the U.S. and then, obviously, you were there by some deterioration in APAC. Gil, when you look forward at your pipeline for Q1 or for 2014, wondered if you could just give us your comments about what you're seeing geographically and sort of just what your expectations are.
  • Gil Shwed:
    I don't think I have something too much in particular. Last quarter, I think U.S. was great. Europe was also very good. Europe was even particularly strong on the product sales, which is the best sign. For 2014, I think our model for our sales force has been quite balanced between the different regions.
  • Philip Winslow:
    Got it. And then also just, Gil, you made a comment on just remote office, branch office. Just wondered if you could comment about what you're seeing there. Obviously, you talked about your small and midsized business initiatives. But sort of in that robo market, what does Check Point have to offer there?
  • Gil Shwed:
    I think the new 600 Series that we have is an amazing product. And I think the review that came out when we introduced the product shows that the product is, hands down, winner in the category. I think there's much more potential for us to gain the mindshare of the resellers and the customers that are buying our solutions. But the 600 Series is an amazing solution. We have a scalable architecture, so you don't have to end up with that. You can also grow to the higher-end product. Again, some of our cloud services are a great complementary things to small and midsized businesses because they don't require one. Actually, when we see high-end businesses, they like to build their own private cloud and not to use external cloud for security analysis. The small business, they cannot afford putting expensive equipment, and our cloud services are a great solution for that. So I see a great potential to that. At the same time, it will take us a long time to build that pipeline and convert the channels from other offers to our appliances.
  • Tal Payne:
    And I will just say that so far, since we launched the 600 and the 1100 in Q2, every quarter, Q2, Q3, Q4, we see tens of percentage of increase, both in the dollars and in the units.
  • Gil Shwed:
    Still, unfortunately, still small compared to the potential of that market.
  • Operator:
    Our next question is coming from the line of Walter Pritchard with Citigroup.
  • Walter H. Pritchard:
    Tal, just a quick question for you on cash available. I just wanted to confirm with these Israeli tax settlements out of the way, could you -- can you -- is all of your cash flow generated available to buy back? And is all of the $3.6 billion on the balance sheet available to return if, understanding you're not necessarily announcing that, but is -- are there any other restrictions on the cash?
  • Tal Payne:
    I'll try to give the short answer. The new cash is free. The ones -- about $2 billion out of the rest of the balance is free. And the rest of it is free because it's not coming from profits, but actually from advances from customers, deferred revenue, equity and so on. So that is a reduction of capital and it's a legal process.
  • Gil Shwed:
    But it's about the other types of flows. But from the tax flows in Israel, now all of that is free.
  • Walter H. Pritchard:
    Got it. And then just, Gil, a question for you. There's been, I think, some building excitement from some investors around the potential for a pickup in firewall, a refresh activity during 2014. I'm wondering what you see. You have one of the largest installed bases out there in terms of gateways. I'm wondering what you're modeling and sort of customer history tells you about what 2014 looks like in terms of firewall refresh?
  • Gil Shwed:
    I think some of our data also shows a lot of potential. I think we're not modeling a lot of threat because in previous years, we haven't seen that a lot of these potential refresh have necessarily translated in the same timing that it was expected. But a lot of the IP Series products, which we acquired from Nokia, it's a good time for them to refresh, for example.
  • Operator:
    The next question is coming from the line of Brent Thill with UBS.
  • Brent Thill:
    Gil, I just wanted to follow up on Walter's question. When you talk about that refresh, if you saw the last refresh 4, 5 years back and if you have an average life of a firewall 3 to 5 years, why would you not see a refresh going into '14 given the time series of the life cycle plus the technology shifts and everyone else in the industry is talking about this? Why wouldn't you see that?
  • Tal Payne:
    I would say the following
  • Brent Thill:
    Okay. And Tal, can you just walk through last year? If you broke out your new customer growth versus existing customer growth, is there a metric or direction you can tell us in terms of how that new customer growth is tracking?
  • Tal Payne:
    Yes. Remember, we are like dominant in the market. We are leaders in that, so we have hundreds of thousands of units installed out there. So the number is, obviously, for us, it's a fraction comparing to new customers that are just coming into the game. So for them, majority of their customers are new. But for us, the majority is existing customers. Software blade, a lot of these are new, not customers, but new products sold to existing customers and some of them also to new customers. We have thousands of new customers every year, right? But...
  • Gil Shwed:
    We have thousands of new customers every year and some of them are small, some of them are very large. We've seen deals north of million dollars that are new customers, even though usually for a new customer, it takes time to ramp up. Our strategy, by the way, is not to do huge deals at once. But most of our customers, we like to -- them to purchase and feel comfortable and do more. But we are seeing a nice increase in new customers.
  • Kip Meintzer:
    All right. Thank you guys for joining us. Before I leave, I just want to make sure everybody got guidance correctly. For the year, it's $1.45 billion to $1.5 billion, and the non-GAAP earnings per share is $3.50 to $3.70 for the year, and GAAP EPS is expected to be approximately $0.32 less. On the quarter, we're expecting $330 million to $350 million with $0.79 to $0.86, with GAAP being $0.08 less. And with that, I'd like to say thank you for joining us today, and we look forward to seeing you guys through the quarter. Thanks.
  • Gil Shwed:
    Thank you very much.
  • Operator:
    Thank you. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.