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Check Point Software Technologies Ltd. (NASDAQ:CHKP)

Barclays Global Technology, Media and Telecommunications Conference

May 23, 2013 9:45 am ET

Executives

Kip Meintzer

Unknown Analyst

Okay, and let's start our next session. I'm really happy to have Kip Meintzer here, the IR person for Check Point. But he's been around the company for quite a while. So I'm really happy. And there's no breakout session, so we'll try to make it relatively interactive with you guys as well.

First, before we start, though, we have a quick Safe Harbor.

Kip Meintzer

Yes. So as always, any forward-looking statements made during the course of the conversation are covered by the Securities and Exchange Act of 1934 and, I think, of 1935. Anyways, any -- if you want to know about the risks and uncertainties associated with any of those statements, check out our latest press release or the 20-F filed for the year end December 31, 2012. And as always, we have no duty or take no duty to update any of those statements that are made during to -- during the conversation.

So with that, I'll turn it back to Ramel [ph], and we'll go from there.

Question-and-Answer Session

Unknown Analyst

Okay, perfect. Just to -- I thought, maybe a good point to start is to get everyone on right the speed. So let's just recap the last quarter in terms of what you were seeing there and in terms of the trends, and I'll kind of go deeper then from there.

Kip Meintzer

Well, so if we get back to the last quarter, obviously no secret. The challenges that were out there in the marketplace with a number of companies that came up short, we actually were fell within our guidance, so we were quite happy with that. As far as the dynamics around the quarter for us, we saw an uplift in ASP but didn't quite see the number of units that we had last year-ago quarter. So on the product and license side, we were a little light but did pretty good overall. We saw services and the blade revenue continue to do well. As far as overall business, Tal me a comment here a little while back that, as we came into April, April turned out to be a pretty good -- we -- a pretty nice quarter. However, the cautionary there is, remember, a lot of the business gets done in the third month of the quarter. So even though it looks good in April, April looks better than March, there's always going to be caution there because things do change from month to month during a quarter. But the positive April sign was obviously a nice thing.

Unknown Analyst

The -- just to maybe put it into perspective, what's the linearity for you to build a quarter [ph] for you guys in terms of your month-to-month?

Kip Meintzer

It all depends, but one way to think about it is 25, 25, 50 or maybe even 20, 30, 60. It just depends on the quarter, but it's generally that type of linearity, with the bulk of that being done in the third month of the quarter and a lot of it being done at the end. And that's something we've resided continually since I've been with this company. It's just the nature of the business.

Unknown Analyst

Yes, yes. And the -- if you think about April, I mean, like, how do you -- obviously, quite a few software companies here at the conference. The -- it was partly -- April was a little bit deterrent [ph] for some, but then also, a few of them commented about pipeline kind of slowly to build a little bit better again. Is that something [indiscernible]?

Kip Meintzer

Well, what we talked about at the end of the first quarter and the April time frame when we announced guidance for the second quarter is we've said our sales force is quite happy. They say the pipeline is quite nice. However, when you see all of the erratic-ness that took place at the end of the first quarter, it does give you a moment of pause. So we did throw in the cautionary and we did lighten up our guidance as a result of that. Subsequent, though, we said April did look good, but again, cautionary at the end of the quarter. There's still 2 months left, right? And so -- but those are all positive things compared to what we saw and everybody saw in the first quarter.

Unknown Analyst

Yes, yes, yes. So with the -- I really have to read it, like, the total -- like, if you would look at -- if we would have had this conversation in January and February, you wouldn't have sounded like you would sound today...

Kip Meintzer

No, it would -- yes, it would have been completely -- probably a completely different conversation.

Unknown Analyst

Yes, okay. And then just talk a little bit about the different geos in terms of what you see there [ph] and in terms of what was kind of -- I mean, I guess everyone talks about Europe, but just...

Kip Meintzer

Well, for us, we saw Europe improving since the third quarter of last year. So it stabilized, and we saw improvement going forward. So that was a nice thing to see. But at the same time, there are -- the challenges occurred in other parts of the geographies, like the U.S., et cetera. And I think that's been echoed by other companies out there also in the first quarter. We'll see going forward. It's nice to see improvements in the European area because that does represent about 38% to 40% of our revenue. So all those things are beneficial. A lot of what happened last year could have been a result of FX, macro, et cetera because, remember, we do price all in dollars worldwide so that when the dollar gained strength, like it did at the beginning of last year, it makes it tough on the budgets of our European customers.

Unknown Analyst

Yes, yes, okay. And then the -- I mean, staying on the quarter for just promptly a couple of questions. Like, let's talk about the ASP trends because that's something that's kind of look very interesting from my...

Kip Meintzer

Well, last year, what we saw was a trade-down with the refresh of the whole appliance line that we did, the introduction of the consolidated line, going from approximately 30 appliances of the combined Check Point and Nokia line all the way down to just, I think it's, 12 to 15 boxes, which is just a consistent Check Point line. And just to give people a refresher: Remember, we acquired our partner Nokia's security appliance business back in 2009. And at that time, we told people that we were going to unify the operating systems. And in doing so, we would pull together the install base. And we said it would take approximately 3 years, and that's indeed what it took. And so at the end of '11, we introduced the new line of appliance that -- appliances that were to consolidate the appliance lines and also bring together the operating system, which the -- that introduction was called GAiA. With that, we also updated the processing power of the boxes and effectively tripled the performance of all the boxes compared to the predecessors at the same level. What that transpired or what transitioned in the next year, during 2012, was because of the strengthening dollar, because of the increased power and because of the macro economy out there, we saw customers opting to buy a one-level-down appliance, which would be cheaper for them, but they would still have more power than their previous box. And what we would have liked them to do, obviously, is buy at the same level, spend the same amount of money, but due to the FX, due to the macro, it probably resulted in them making that decision to trade down. So it wasn't discounting, it wasn't anything like that, it was actually a customer trading down and buying a lower-level appliance. As we move through this year, as we moved through the year, less and less took place of that in the latter part of the year, so ASPs started to stabilize while units decreased towards the end of the year. So what we have at the beginning of this year is high units with a stable -- for a compare, stable ASP. And so what we saw in the Q1 time frame was an increase in ASP, but it wasn't enough to outstrip the decrease in units. So we still came up a little short on the product and license side. I think it was 5% is what we were down. However, going forward, the compares get easier, and if we continue to see the trend with the ASP, the trade-up effect, as it might be called, that's very beneficial. So we've said the second half of the year is probably when you should expect to see a more positive tone out of the products and license line. And so...

Unknown Analyst

Yes, yes. And the -- I mean, the other questions that came up in the quarter was on the high-end side, that you kind of called out the high-end side there. Can you just kind of elaborate there a little bit, then?

Kip Meintzer

Well, the 61000 is doing very well for us. We're -- it's a fantastic box. I don't think there's anything that compares to it in the marketplace. What transpired during the quarter is we were trying to give people some context to the difference between this first quarter of this year and the first quarter of last year. And that context was around the 61000. We had had a very large purchase of the 61000s in January -- or the March quarter of last year. And I think we made commentary to the fact that we couldn't sell any more. We sold everything we had in the first quarter of last year. And so what we were trying to say is these are lumpy sales. The -- you don't sell the same amount every quarter or what have you, and nothing slipped. It's just that there wasn't that same size of a purchase made in the first quarter. And Tal brought up that it was about a delta of about $5 million. And so it wasn't -- and it was just to give context, not excuse, nothing along that line, but context of what the difference was between last year and this year.

Unknown Analyst

Yes, yes. Okay, perfect.

Kip Meintzer

All right?

Unknown Analyst

And then how -- if you think about it -- just for the audiences only [ph], so if you think about the high-end series, like, how do I think about it on a per-quarter level? I mean, kind of -- which at [ph] kind of how many you -- do we selling per quarter and...

Kip Meintzer

Well, we don't kind of -- we don't give the numbers. We've given in the past the dollars, we've said it was in the 8 figures at one point. The way to think about it is it is lumpy and lumpy from the standpoint of you'll have somebody who buys enterprises that buy a bunch at one time and it's not something that gets repeated quarter to quarter. And so -- but it's doing very well...

Unknown Analyst

;

So the -- yes, okay. So the point here is -- to make is this is not like a Fortinet-ric kind of a problem, this is kind of really a comparable problem.

Kip Meintzer

Yes. No, this is not a Fortinet type of problem.

Unknown Analyst

Okay, yes. Okay. I mean, the one thing that kind of continue to do really well with -- in the quarter was kind of on the blades and, hence then [ph], subscription side. Talk a little bit about that. That's kind of evolving. It's a really nice kind of driver for you in this...

Kip Meintzer

Well, part and parcel of that is the bundling effect that we do because we do include IPS and app control in every actual purchase that's made of an appliance. We've also seen -- continue to see more uptake on the a la carte side. So as we come out with more and more of these new blades, we hope that that'll continue. And we have Threat Emulation that we just announced, be out in the next month's GA. We've had Anti-Bot out for a while, which is doing very well. If you look at the way that this ranks, IPS is our biggest, app control is our second biggest. And after that, it becomes URL filtering, AV-similars in that range. But the other ones, the other blades that we have out there, are growing very fast, like Anti-Bot. DLP, we'd love to see it take off, but we think that's a timing issue for customers. I don't think all customers are ready for it yet. But if you look at the advanced threats that are out there today, there's a necessity to have layers of protection. And one of those layers to prevent your intellectual property from leaving your organization is going to be DLP because, remember, what's happening today is bots are invading, 0-day threats are invading organizations. When we first took our Anti-Bot blade out and started putting it out there EA, it was finding immense amounts of bots active in R&D areas of companies, biotechs, et cetera. And if you really want to get an idea about this, we have actually a survey or a study that we did that's on our website, and you can see all the data from it. And it was -- I think it was in the course of 100 customers or something along that lines. But what transpires is you can't prevent those bots absolutely from getting in because you have employees coming in with USB sticks. Some of it's going to be malicious, some of it's going to be accidental. However, when it gets in, what you're trying to prevent, one, you're going to have an Anti-Bot blade and you're going to try and find those actual bots that are communicating. But in the process, the way to block it from sending out intellectual property is having a blade such as DLP which is looking for communications that shouldn't be going outside of the company either to FTP sites, to HTTP sites or through email. So when -- a perfect example is, if somebody tries to send to an email address that's not associated with the company proprietary information, DLP is going to block it. And so these are the types of things that people or enterprises are needing to move towards to actually protect their intellectual property. So we think DLP is a good potential blade for the future, but definitely, all these other ones are doing very well. We think, obviously with the level of noise around 0-day threats, that our new bot blade or the, geez, emulation blade, Threat Emulation blade, is going to be very promising. So, Okay?

Unknown Analyst

Yes. And how do you -- if you think about it, how do you think about an attach that versus kind of selling at standalone on the blade side?

Kip Meintzer

So it remains to be seen what we're going to do with the Threat Emulation, whether we will bundle it or whether we will sell it as a standalone. It will obviously be both. If we decide to bundle it, it'll also be available standalone. I think what you're going to see us start to do is start creating packages for our customers that are appropriate for what they need. So threat prevention would be something along the lines of Anti-Bots, Threat Emulation and IPS all wrapped up, and one with DLP possibly, but actually giving them the tools that they need to have. So it remains to be seen how we're going to do the Threat Emulation blade, but time will tell.

Unknown Analyst

Yes, yes. And then the -- so how do you think about the monetization model? And if you bundle more, like, one is a strictly more subscription for you and the other is not quite there, so how do you think about that stand? And how was customer presumptions [ph] in term of how they want to kind of consume it?

Kip Meintzer

Yes, so I think this comes along the lines what I was talking about, trying to figure out if we're going to start creating packages and what have you. What we've done so far is we started bundling IPS first, and that was the most positively received blade, followed by app control. And those are our 2 largest penetrated blades. I guess it's very well received by customers because you can see the adoption rate. The renewal rate or the conversion rate from someone who receives it as a bundle to a paying customer is around the 50%, 55% range, somewheres in that neighborhood. So that's a very good uptick for something that somebody received that they didn't ask for. On the a la carte side, it's closer to 60%, 65%. From this standpoint, I think it's a good indicator of the future. The question will be whether we decide to bundle one of these other blades in. You do get the adoption, the quicker adoption, because people are taking and they're using it. But I think -- the demand function around something like Threat Emulation, I think that can almost just hold its own without being bundled in. But..

Unknown Analyst

Yes, yes. Okay, so that's the way to think about it.

Kip Meintzer

Yes. It's a -- it's whether it makes sense to do it or not, right? And every time we bundle an additional blade in, that's less product and license revenue that shows up. It only happens for the first year because then you get the same compare at the second year. But we experienced that when we added IPS, and then experienced that when we added app control. So you do have a delta for 1 year where you're actually extracting more as part of VSOE and allocating that extra amount of the sales price to the deferred.

Unknown Analyst

Yes, okay, perfect. And then if you think about all the blades that are doing there, this is -- obviously, as -- one of your newer competitors out there is saying, you don't want to do blades at all, you need to have it made to [ph] the new product. Can you just talk a little bit about how you kind of see the future of the firewall playing out here?

Kip Meintzer

Well, I'm -- here's the problem: People can say whatever they'd like, right? I mean, it's all noise. And when you get down to testing and proof of concept, that's where you see -- that's where the pedal goes to the metal, as we should say. So when you look at something like the NSS Labs test, we're rated the highest on firewall, IPS and Next Generation Firewall, and not just by a little bit over that particular competitor you're talking about. So they can make up stuff, they can make claims and things along that lines, we choose to let our products perform and speak for themselves. The banter, it's got no place. And as far as their claims, I mean, I would always ask is, they have a product that's competes with our Threat Emulation blade, I think it's called WildFire. I mean, a wildfire is usually spread very fast. My understanding is it 45 minutes to remediate a file that goes up into the cloud, so that sounds more like a spark than a wildfire. So I mean, they promise to make it faster, but that's one thing. But from that standpoint, we're about security, we're not about banter. And so what we try to do is make sure our customers are secure as possible. And that's why we provide that platform.

Unknown Analyst

Yes, okay. And then the -- just on that subject, I mean we've had several buzz words over the years in terms of firewalls and a unified threat protection. Now we have the Next Generation Firewall. How -- I mean, how do you kind of keep up...

Kip Meintzer

Here's the reality. If you look at the evolution of this market, it started out with firewalls. And that was way back when they used to be custom made. And then Check Point came out with FireWall-1, the packaged software product. From there, every time you've seen a new technology added, it's been a deal without issue or a problem within the enterprise. Now that's either a security issue where you have emails coming in that are tainted so you needed IPS or you needed AV or anti-malware; or you had an HR problem, like you guys have in Wall Street, where you need URL filtering to prevent people from going to porn sites or something like that. But if you move forward, it's just a natural evolution. And so what you have today or along these lines are you have app control, which is to deal with the proliferation of software-based applications. On top of that, now you have threat emulations to deal with custom-made threats, right, because that's what you're dealing with. You're dealing with people that are targeting institutions, custom-making software. The first one that became renowned was Stuxnet. And this is where people devote a lot of money on [ph] and a lot of time, so the level of sophistication is going up. And what you're seeing is you can't have a single-point solution for every one of these problems, it'll be too complex. And you'd have blind spots between all of these individual solutions. So enterprises are trying to consolidate. And this is the natural progression of -- or evolution of the industry to go towards consolidation, which is reduce the number of vendors you're relying upon to do your security. And so what Check Point's done is we've led the way with our platform. And you have people saying, old, antiquated technology. Our technology is not the same thing that was there in 1993. Our products have evolved and changed dramatically. I was talking with an SCE who we had in presenting to some investors the other day. And we asked him a question, and it's, "Is this the same stuff?" And he's been with the company 10 years, and he goes, "Over the last 10 years, our product has changed night and day. There's no comparison." And he says, "I don't know about '93 because I wasn't here, but if it changed in the last 10 years that dramatically, then it is." But you have people talk about, "Oh, you don't need to guard ports or things like this," all this banter. The reality is they still guard ports, and their customers use their product to guard ports. So there's a lot of marketing, a lot of disinformation, a lot of disingenuous stuff put out in the marketplace. And customers, I think, see through it more than investors do. I think, investors, they like the banter, they like the excitement, and it's the bravado, but it only lasts for so long, I mean. And then it turns just to white noise.

Unknown Analyst

I mean, do you -- how do you think about that security? When you start to talk about it a little bit in terms of we have -- at the moment, we have all of these different point solutions that are kind of going around there, where do you see -- like, a bit longer term, I think, it will kind of all kind of migrate to something? Where do you see that? I would assume it would...

Kip Meintzer

Well, you're never going to -- well, you can see it go down to 1 vendor. I mean, capabilities that Check Point has today will allow a customer to standardize on Check Point across the board, from the end point all the way to the network. And we actually have customers that have done this. And so that is the potential. The likelihood is you won't see that anytime soon. You'll see people consolidating down, reducing from 20 different vendors to a handful of different vendors. And if you look at what we've done at Check Point, each and every one of our products that we play in is best in breed. I mean, firewall, VPN, IPS, Next Generation Firewall. These are all rated #1 or #2 in the marketplace. And so when you're looking to consolidate down, you don't want to consolidate down to mediocrity. And that's what you get when you go with some players, some players that, quite frankly, have only been in the market for a split second, it feels like, and they're claiming dominance over the neighborhood, right, yet they don't show up in the top in anything. And so this is a problem for customers because they need to have the comfort that they actually have the ability to stop attacks and stop attacks across the board.

Unknown Analyst

Yes, yes. And then so from your perspective, I mean, there's kind of a new area. If I look at it, at the moment, like, a lot of excitement around FireEye's potentially done by [indiscernible], seem to be mis-executing. So that's kind of, like, yes, I mean, at this point, they're probably doing okay, but is that something where...

Kip Meintzer

It goes back to the -- if you look at consolidation, right, FireEye is probably a great company. I mean, Dave DeWalt is great guy, I got a lot of respect for him. And it's going to have a place in the market. There are always going to be a place for point solution. The question is, will that be enough to be able to live off as a company? And so if you look at our Threat Emulation product, it's actually in-line. It's also we have a cloud version of it, and you can also have a dedicated appliance. The difference between our product and our competitors' products, one, you stop the file and it gets remediated before it hits the infrastructure and gets to the customer, whereas, I believe, in our competitors' products -- and I can stand corrected, but I believe they actually let the product through and remediate it later and then go back and have to deal with it if there was a problem. We don't do that. I invite everybody, if you want to use the Threat Emulation product on your own files that you receive in your email, you can actually go to, let's see if I remember this right, threats.checkpoint.com and/or threats@threats.checkpoint.com. You can either email or go to the website and actually upload a file, and you'll actually get a report back that will actually provide you if the file was bad, what it does to your machine if you install it. And it actually gives you the virtual machine view of what that file looks like inside the virtual desktop or whatever that's been exploded. And it's a great product and a great learning experience for those of you that want to understand this product or understand this area of security that much more. And you can also -- you can get to it by way of our website also.

Unknown Analyst

Yes, okay. We'll have a look at that. Do you -- let's talk a little bit about the classic competitors, with Juniper, Cisco. Where do you see them in? Like, Juniper just looks to be, like, in the end fight with Palo Alto now who owns the IP of Palo Alto...

Kip Meintzer

Now that's all alleged. That's all alleged. We got to wait til the court figures that out.

Unknown Analyst

Yes. So where do you see the established vendors at the moment? Do you still have a high market share? If I look at the stats, you actually kind of overtook WSA [ph].

Kip Meintzer

We're actually #1, as according to IDC. If you look at Cisco and Juniper today in the marketplace, I think Juniper's latest quarter tells a horrific tale. And unfortunately for them, it's not a nice one. As far as Cisco, they didn't have the hottest either on the security side. And I think they've actually stemmed some of the bleeding -- excuse me, I don't know if they've stemmed at all. But they are -- these are 2 very large established vendors, and they can change the course of business in a matter of quarters by dedicating resources, by making concentrated efforts. And I just -- I won't say that we've seen that yet from either of them. You've seen rhetoric, but you haven't seen the execution side. So I would say there's still shared donors. I don't know at what level Cisco is compared to Juniper, but there's still a threat. And again, they can change the dynamic of the market anytime they want.

Unknown Analyst

Is that a -- that sounded a little bit like that's kind of where you're more concerned about because they have bigger market share, they have more resources than...

Kip Meintzer

I think the -- only the paranoid survive, right? So you're concerned about everything. I think they have the ability to change on a dime because, remember, they've competed on price since the beginning. Basically, they've always used it as a way of solidifying their network gear, by bundling it everything else. And so they -- for all intents and purposes, they give it away free. So when people say, "Aren't you worried about price, competition, whatever?" you're always worried, but we've been dealing with that for over 10 years, 13 years. So on top of that, I think one of the issues that you have to look at and you have to gauge is both these players are going through dramatic changes, both from an FTN perspective as part of their industry. But remember, security is only a miniscule amount of the revenue that they generate. The bulk of their revenue comes from their networking gear and things along that lines. And that's where they're really -- that's where the risk is for them. So if I were them and if I put myself in their shoes, I would be spending more time worrying about that core part of my business than actual security. That amounts to 1.5 billion or whatever of revenue for Cisco, however you want to look at it. So that would be my take, still always concerned and still always looking but I think we'll have to see if there are changes to that.

Unknown Analyst

And do you think, like -- because at the moment, if you look at security, there is so much happening in terms of the new threats coming out here and so much that a vendor needs to react to, I would assume this almost makes it more difficult for them. It's not just kind of one area they need to fix, there's kind of multiple areas that need to be fixed now that...

Kip Meintzer

Well -- but that has to do with all of our competitors. And it comes from this standpoint: One of the things that makes Check Point such a strong company in this marketplace is all we do is security and all we're dedicated to doing for the last 20 years is security. So all of our R&D, all -- every item goes towards making our security better for our customers. And so for these smaller companies, if you really think about what they're doing, they haven't been around that long. And this goes for all of them. And they're still trying to build just the basic backbone of their product because everybody is trying to build a platform because, form a platform, then you can take advantage of those items such as, far us, user check, reporting, the certificate authority, the management capabilities. You can take advantage of these things in a multiplier effect every time you add additional technologies to your platform. And while we continue to improve our platform, we just have a long head start on these guys because we've been doing it for 20 years. Some of these guys are still trying to get the basics into their product, the basics in reporting, the basics even being able to do a VPN connections for multiple locations without having, like, 600 command line edits that you have to do. So from that standpoint, all of our knowledge is going into improving the platform and making it that much better, where many of our other competitors are just trying to get the basics. And that's -- if you're a customer, that's a big deal. And I mean, you hear from customers when they talk about it, the strengths of our platform are the management, the scalability, the strength, the -- then not worrying about being -- getting substandard product. And you just get the opposite complaints about our other competitors.

Unknown Analyst

Yes, okay. And since we don't do a breakout, I want to give the -- make sure that we have time for questions before -- oh, there's one already here. But otherwise...

Kip Meintzer

Right here.

Unknown Analyst

Just 2 days ago, NetApp company was probably a comparable growth profile as yours. So, the latest to announce a dividend. I think there's a growing sentiment among tough [ph] investors that dividend does not necessarily mean growth. It's -- there is -- that growth is over. And arguably, you have more flexibility than the U.S.-based companies to do a dividend given you don't have the offshore cash situation.

Kip Meintzer

Well, you'd actually be incorrect there. So what -- I don't mean to be -- correct you in that way. But the fact of the matter is we could do a dividend with the cash that's on our balance sheet. We'll have to pay an additional 20% to 25% in tax per dollar as a result of that. And we can use that cash in our balance sheet for M&A, but we can't use it for buyback or dividend without paying that extra tax. And...

Unknown Analyst

You can use the free cash flow that you're generating...

Kip Meintzer

We're actually using free cash flow, almost all of it, for a buyback. So I would just tell you this: One, it's something our board discusses; two, it's something we discuss with our investors. And we do a survey every year towards the end of the year, and last year, when we did one, we did it with over 600 investors. And what I can tell you is that 90-plus percent want buyback or M&A and only about less than 10% of them want a dividend. Now you're right, the wind has changed, the wind blows with the investors, and right now it seems to be a great thing. People want yield, as you point out. It's a new thing. And so maybe when we get to the end of this year, there will be a different commentary from investors, but needless to say, right now, the commonplace [ph] is we do buyback with that cash flow. It doesn't -- dividends are never out of the question but which is not something we're doing right now.

Unknown Analyst

Do you think the tax situation will kind of -- because that was the debate in...

Kip Meintzer

It all depends on what happens with the tax saw that was put out in November. We have til November to adopt it. And it's got a bunch of moving pieces. So what we tell everybody is there's no -- it could go either way, so don't plan on it. When we tell you if we adopt it or not, then you'll have that knowledge. So when it happens, it'll happen. Anybody else?

Unknown Analyst

I'll have -- I would have one more. Just talk a little bit about -- we saw late last year OpEx starting to kind of ramp up again. Can you just talk a little about if you're going to -- your thinking about investment levels.

Kip Meintzer

Well, there's -- yes, there's a couple of things that happened there. One, the dollar started to get weaker at the end of last year. Two, on top of that, we did make further investments, and we've talked about those investments, more investments in R&D, no different than we have, really, in the past. But in the fourth quarter and the first quarter, we started making more investments on the sales and marketing sides. And we've been quite adamant that we will make continued investments on the sales and marketing side. And I think Tal says that, combined with FX, is like 1% to 2%. You could see a move in operating expense, right, of a percentage, operating margin. What I would point out, though, is remember, it's all based on where revenues come in because if revenues come in a little bit better, you've seen this in the past when we've told you guys you should expect margins not to go any place or decrease even, and they ended up increasing. So it's really a function of the business. The better we do, the more opportunity there is on the spending side. But also, there -- we don't target our operating margin. So let's just put it that way. We target top line and we target bottom line. We're all -- all we care about is profitability, so when we can eke out more money on the bottom line, and that's what we're happy about. It just so happens a product of our DNA and the way the company is run are these world-class margins, and it's -- I think it's a testament to the culture and the DNA of the company that Gil Shwed and the rest of the team has built over the last 20 years. Is -- this is a company that is, as shareholder focused, every dollar is spent like it's your own, right? So you don't go do something if you wouldn't spend your own money on it. So with that, anybody else got a question? Ah, you're not going to stand in front of me and my only flight, how nice. Well, thanks, guys.

Unknown Analyst

All right. Perfect. Thank you, Kip. Thanks for joining us.

Kip Meintzer

Please. Thank you.

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