Check Point Software Technologies Ltd. (CHKP) Earnings

Management highlights

### Go-to-Market Organizational Update * Check Point completed the first phase of its go-to-market reorganization and is entering the second phase, with a new hiring campaign to add approximately 300 additional go-to-market employees globally by the end of 2026. The majority of new hires will be based in North America and Western Europe, with additional headcount added across APAC and other regions, including both frontline generalist sellers and AI product specialists. * New sales hires are expected to begin contributing to revenue starting in Q1 and Q2 2027, with no impact to 2026 guidance from this expansion. ### AI Cybersecurity Product Innovation * The cybersecurity industry is at an inflection point: AI has democratized and industrialized sophisticated cyberattacks by collapsing the scarcity of adversarial capabilities, requiring a new paradigm of cybersecurity that combines traditional prevention fundamentals with new AI-native capabilities. * Check Point launched the industry's first AI network firewall, designed to provide visibility, control, and security for AI model interactions, AI agent actions, and AI-generated network traffic. The product is integrated into Check Point's full-stack AI defense plane platform, which spans on-premise networks, private and public cloud, and SASE. * Check Point continues to integrate capabilities from recent acquisitions into its platform, with CTEM (continuous threat exposure management) growing at nearly 100% year-over-year due to demand for automated vulnerability remediation capabilities aligned with AI-era threat models. ### Financial Operational Highlights * Gross profit reached $588 million with an 87% gross margin, a slight decline from prior year driven by higher memory component costs. * Operating income hit $260 million for a 39% operating margin. Non-GAAP net income grew 1% year-over-year to $264 million, with non-GAAP diluted EPS of $2.55 (8% year-over-year growth), exceeding guidance. GAAP net income was $194 million, down 4% year-over-year, with GAAP diluted EPS of $1.87 (2% year-over-year growth). * Adjusted free cash flow was $161 million, $1 million above the midpoint of guidance, representing 24% of total revenue. Cash and marketable securities totaled $4.2 billion at quarter end. * Check Point repurchased 2.5 million shares for $325 million in Q2, and announced a $2 billion expansion of its share repurchase program, which will continue going forward.

Guidance

* Full-year 2026 guidance is maintained unchanged from the May 2026 earnings call, with no upward or downward revision. * Q3 2026 guidance calls for total revenue of $655 million to $685 million, subscription revenue of $332 million to $343 million, non-GAAP diluted EPS of $2.43 to $2.53, and adjusted free cash flow of $235 million to $265 million. Q3 product revenue is expected to see the same declining trend seen in Q2, driven by continued demand softness for firewall appliances and large deals pushed from Q3 to Q4. * Management expects Q3 2026 to be the trough for revenue growth, followed by a Q4 2026 rebound that will meet the full-year 2026 guidance, which implies a record Q4 2026 revenue of ~$800 million at the guidance midpoint, representing ~6.5% year-over-year growth. Product revenue is expected to return to year-over-year growth in Q4 2026, supported by a significantly stronger qualified pipeline than what was projected in May. * The 2026 guidance does not include any revenue contribution from the newly announced sales headcount expansion, which is expected to impact growth starting in 2027.

Segment performance

Total company revenue for Q2 2026 was $674 million, representing 1% year-over-year growth. Product revenue declined 14% year-over-year due to lower demand for firewall appliances, driven by ongoing go-to-market organizational disruption. Subscription revenue reached $333 million, growing 12% year-over-year, and contributed 49.4% of total Q2 revenue. High-growth emerging products including email security, CTEM, and AI security grew 40% year-over-year in annual recurring revenue (ARR) and 35% year-over-year in calculated billing. Geographically, EMEA and Americas each contributed 44% of total Q2 revenue, while Asia Pacific contributed 12% of revenue, consistent with prior year geographic contribution splits. Deferred revenue grew 7% year-over-year to $2.25 billion, total remaining performance obligation (RPO) grew 7% to $2.55 billion, and current RPO grew 4% to $1.6 billion. Calculated billing was flat year-over-year at $639 million, while current calculated billing grew 2% to $641 million.

Risks & headwinds

* Go-to-market organizational restructuring created near-term execution disruption, which reduced Q2 2026 product revenue and is expected to continue pressuring Q3 2026 product revenue before improving in Q4. * Higher memory component costs have put downward pressure on gross margins in the near term. * AI-driven changes to the cybersecurity threat landscape require rapid product innovation and go-to-market scaling, and failure to keep pace with evolving threats could result in lost market share. * Seasonal slowdowns in Q3 due to summer vacations create execution risk for closing scheduled deals, leading to the risk of additional deal push into Q4. * Billing growth can be volatile based on customer billing term preferences (annual vs quarterly), which can distort near-term top-line performance even as long-term RPO remains healthy.

Analyst Q&A

• Q: How has enterprise customer buying behavior changed due to advanced AI risk concerns, and which of Check Point's product lines is seeing the most demand from this trend?

  A: Attackers now have access to previously scarce AI capabilities, leading to more sophisticated attacks at a faster cadence that is outpacing traditional cybersecurity paradigms. Customers are prioritizing both improved core prevention fundamentals and new AI-native security capabilities. Check Point's CTEM product line, which enables automated vulnerability remediation, is growing at nearly 100% year-over-year, while the new AI network firewall addresses customer demand for visibility and control of internal AI usage and traffic. The company is investing heavily to build a new AI-native security paradigm alongside maintaining its core prevention strengths.

• Q: Beyond adding more sales headcount, what is Check Point doing to overcome the customer perception that it is a legacy cybersecurity provider?

  A: Adding 300 new salespeople is the second phase of the company's go-to-market reorganization, completed after stabilizing the new organizational structure. The company is increasing marketing investment to highlight its new AI-focused innovation, particularly the new AI network firewall that updates Check Point's core firewall product for the AI era. The company is also advancing its open platform strategy, which will soon allow customers to manage competitor firewalls through Check Point's unified management platform, enabling automated cross-vendor vulnerability remediation that fits the needs of the AI era. This combination of product innovation, expanded go-to-market capacity, and updated platform strategy is already driving a stronger Q4 sales pipeline.

• Q: Why are you confident in a Q4 2026 rebound after recent soft firewall appliance demand, when the new sales hires will not impact results until 2027?

  A: The Q4 rebound is driven by a larger and higher-quality qualified pipeline of deals, including many large deals that are being pushed from Q3 to Q4 due to seasonal summer slowdowns. The strength in the pipeline is already visible, and the softness in demand this quarter is primarily due to internal go-to-market disruption from the reorganization, not weak external demand. The new sales hiring is a strategic investment for 2027 growth, and was never expected to impact 2026 results, so it does not factor into the maintained full-year guidance. The reorg is now complete and stabilized, supporting improved execution for Q4.

• Q: Peers are reporting strong firewall demand driven by AI infrastructure spending — why is Check Point seeing soft demand for its firewall appliances?

  A: The softness is primarily driven by internal execution disruption from the go-to-market reorganization, not weak external demand. The company sees strong overall demand for firewalls in the market, including for AI infrastructure use cases, and has a strong pipeline of qualified firewall deals for Q4. The softness is also partially exacerbated by near-term memory supply chain constraints that have impacted appliance availability. The launch of the new AI network firewall positions Check Point to capture growing AI-driven firewall demand, and the company's improved pipeline for Q4 supports the expected return to product growth this quarter.