Joshua Tilton: All right. Just one for me, I guess. Any way you could just help us understand what was the impact of the quarter from some of these newer appliances? I know they started shipping in the quarter, but was there any benefits or maybe even a negative as people kind of just waited to buy some of this newer stuff. And then maybe just how should we think about the pace of growth throughout the rest of the year, as you see some of your customers look to adopt the newer hardware.
Roei Golan: So I can, maybe just start [ph] here and then, okay, so I think in terms of the transition, the allowances we have with the Quantum Force, we did see a positive traction mainly on the IM side of the Quantum Force appliances. But again, the transition, it takes time. It takes time because significant part of our customer needs to do certification, internal certification, in order to implement a new product. So that might — that sometimes have a negative effect. In this quarter, I think we do — we did see a healthy transition. We did see some nice deals also with the new product, with the new product that we launched. And as for your question for the remaining of the year, so I think, again, we hope to see that mainly on the second half of the year, we’re going to see more and more of our customers taking the new product with drive don’t fully will drive to our product because, as I mentioned, it might take a quarter or two until the certification process is going on.
And hopefully, it will help us to grow our product also in the second half of the year.
Kip Meintzer: All right. Next up is Rob Owens, followed by Brad Zelnick.
Rob Owens: Great. Thanks, Kip. Gil, in your prepared remarks, you talked about an AI infrastructure firewall. And I was hoping you can maybe build on those comments because that feels like a net new opportunity potentially for the space? Thanks.
Gil Shwed: So you’re absolutely right. That’s a net new opportunity. There is hundreds of thousands of AI servers now deployed around the world, mainly with a few hundred service — cloud AI service providers that are building that infrastructure, and they are buying pretty complicated systems that are based on the AI on the NVIDIA designs and the NVIDIA chipsets. I’ve looked in these designs. They are pretty complicated, very different, by the way. I’m sure that you follow the AI industry. But when looking into the architecture design, these are very different than traditional servers. In traditional server, there is mainly one CPU here versus like three or four different types of processors, each one in charge of different activities.
And we are — where we are — and these are, as you probably know, these costs close to $200,000 per server. And there is usually in a typical installation there’s thousands of these that are being installed. These are pretty big infrastructures. First, in terms of the security challenge, most of these remain open to the Internet because they utilize high-speed links because we are installed on the cloud environment, we are relatively open on the — to the Internet, which means — but if people heck through that and get through their network linked to the Internet, they can do all kinds of bad stuff to the infrastructure from poisoning the learning process of the AI model, and if that happens, you need to retrain it. You can’t even fix the error.
You need to do the training again to hacking into the box and taking over it. And these are pretty big damages today because of the cost of the time on that infrastructure. Where we are setting, if I’m going back to the design, that design has different types of processors, we are actually installing our software on the network processor of these boxes. So we don’t impact the performance of the entire AI, but we will be sitting on the network processor, we can control the flow or make it a true firewall for the traffic between the Internet and the cloud or the AI server itself, the way I call it at least and make sure that, that communication remains clean. We see more things, few more features or interesting technological approaches like monitoring more security on its entire device that we will be able to implement to based on the current architecture.
As I said, this is not — this is a new product, brand-new market, which I have a hard time estimating it because we’ve just started talking to these vendors last month. Though I think in terms of technology, it is in the near mid-term time frame. And the reason for that is it’s not just an idea. We are running on these chipsets from NVIDIA for quite a long time. Some of it architecture has been part of our light speed product that’s like two years old. So the technology, we didn’t start the development of technology today. We’re making it a little bit differently based on the specifics of the implementation, but that means that we expect a relatively short development cycle, and we are starting the business development cycle in terms of understanding the structure of the kind of the supply chain and the distribution chain here to get to these customers.
And these can be pretty big absolutely.
Kip Meintzer: All right. Next up is Brad Zelnick, followed by Patrick Colville.
Brad Zelnick: Great. Can you guys see me, hear me?
Kip Meintzer: Yes, we can hear you, don’t see you.
Brad Zelnick: Okay. My video is on.
Gil Shwed: Now we can see you, yes.
Brad Zelnick: Great to see you guys. I’ve got one for Gil and one for Roei. Roei, cash flow, I know, is always going to be lumpy from quarter-to-quarter. But as we think about the full year, is there anything to consider maybe timing or duration wise that would keep directionally at least cash flow growth somewhat in line with net income growth. And then just for you, Gil, M&A, Check Point has always been very responsible in capital allocation and M&A, in particular, very disciplined buying some of the most innovative technology out there. But we’re now at a moment where it seems like there’s dislocation in the private market. I think we’ve all seen some shocking headlines suggesting serious valuation compression. Why is this not a time to finally get aggressive to accelerate consolidation in the market through M&A? Thanks.
Roei Golan: Okay. So I’ll start with the cash flow. So first of all, regarding the cash flow for Q1. So Q1, we’ve seen our cash flow. You need to remember that Q1 cash flow was mainly, it’s been affected by the billing in Q4 because most of the collection in Q1 is coming from the billing in Q4, because most of it is in December. Same thing in Q1 that most of the billing is coming in March. So although you did see 7% growth in billing most of it we didn’t collect in Q1. And in Q4, our billing was down by 1%. So that’s affected the cash flow in Q1. So you can expect the cash flow in Q2. I think if we are looking on for the full year, it depends on the execution and the billing. I think that we do see stability and the duration.
We did see it. I mentioned it also in Q4; I saw that the duration is pretty stable since Q3 last year. So I think, again, it’s already low. So I think that the comparables are already, so I don’t think that there will be a duration effect on the billing. And hopefully, if the billing will grow same as in Q1 and even higher, that that will affect also of course, our cash flow.
Gil Shwed: In terms of M&A, first, you’re absolutely right. There should be opportunities in the marketplace. We are aggressively looking and I’m seeing probably every week or two, some interesting opportunity that we are evaluating. And the valuations are still not there in terms of being more rational. What you see, if you look at the latest acquisition, you see companies with $10 million, $20 million in revenue, some even less that are being sold for hundreds of millions of dollars. So that — again, it doesn’t mean that we can do it. We did several deals like that. We did three M&A deals last year. And we did some deals like that last year. But it’s hard to find really quality companies. And opportunities when companies that have more significant revenue stream, I haven’t seen some really interesting ones.
There are a few in distressed situations when they are — but we are losing hundreds of millions of dollars. And again, our hope here is not to get — is to get something that has — and they don’t have the growth momentum usually. They have the growth momentum valuation is not very rational. So we are looking at the one that either have super interesting technology that we can tuck-in to our platform, and I think that would create an opportunity even if the valuation is hard to justify in the short-term at least or opportunities that will be more sizable, but then at least the way I look at it, we will need some rationale for the valuations. And I think it’s still not there. I think it will get there in the future.
Kip Meintzer: All right. Next up is Patrick Colville, followed by Fatima Boolani.
Patrick Colville: Sure, Kip. So my question is about, I guess, CPX versus now. So what was interesting to maybe at the CPX conference last month was — there was a lot of interesting tailwinds. The launch of the Force firewalls, in my opinion, much improved messaging around the kind of platform and subscriptions, leaner partner motion was announced. But in your remarks today, you’re definitely kind of playing us down in terms of these factors. It seems like the messaging you want us to take away is the cycle is getting better and these things are coming later. I guess, is that how we should interpret it? Or were there product, subscription or kind of partner changes that impacted this quarter?
Gil Shwed: Yes. I think the opportunity is there. I think we’ve done what we’ve done the right; I mean I think we have super exciting new products in terms of the Quantum Force. In terms of budget increase and refresh and so on, the market is still not there and the industry is competitive. So — and by the way, sometimes it takes time. Now again, what I’m saying is not — is a very positive message. In Q4, we launched some of the super high-end appliances. We did a very silent launch. We’re doing the public launch. We went for specific accounts, and we saw great acceptance of these new models, and this continued in the first quarter. In the first quarter, we did the more general release of the entire appliance line, 10 models from the low end to the high end.
And this is less targeted and we see that it takes a little bit more time for the take-up. Now again, we had amazing numbers in Q1. Don’t get me wrong. And I think we’ve talked about the double-digit growth in new business and so on. So all of these are amazing results. But you are right, I am trying to carve it out a little bit because I don’t see that customers opening their pockets, at least not now. Maybe, I mean, the expectation is that more of that will happen in the second half of the year. And we’ll do a more massive refresh. Now again, a more massive refresh requires the customers to free budget to do the certification, the testing, the implementation. I think we are set up to do all of it. We have amazing price performance; we have great value in terms of the best security.
We have that everything that we know and they need. We have the services. And by the way, our services business the ones that help customers implement and design is growing very, very fast. So that’s a good sign because there is a huge shortage of skills in the entire cyber space worldwide. And we — when we’ve built an amazing arm, what we call it the Infinity platform services or the Infinity global services that can deliver amazing services to ease that planning and deployment, and this is growing very fast with our customers. So I think we’re set up to take advantage of that. But at least for now, I do see some tightening in the market, yes.
Kip Meintzer: All right. Next up is for Fatima Boolani, followed by Joel Fishbein.
Fatima Boolani: Good morning. Good afternoon. Thank you for taking my question. Roei, this one’s for you. I wasn’t 100% clear as to what were the driving forces behind another double-digit new business bookings growth performance? I was hoping you could break that down between the four pillars of your business. And just second early at a high level. For the last eight quarters or so, you’ve consistently been sort of around the 45%-ish operating margin envelope. And for us, for a lot of us who’ve known the business for a very long time, where you used to — you having maybe closer to 50% rating margin. So I’m curious, what’s the path back to those levels from here? Is it you’ve been in almost a two-year sustained investment cycle? Thank you.
