Source: Yahoo Finance / Quartr transcript
Kip Meintzer, Head of Global IR: During the formal presentation, all participants are in a listen-only mode that will be followed by a Q&A session. During the presentation, Check Point's representatives may make forward-looking statements. In our press release, which has been posted on our website, we present GAAP and non-GAAP results, along with the reconciliation of such results, as well as the reasons for our presentation of non-GAAP information. Now I'd like to turn the call over to Nadav Zafrir.
Nadav Zafrir, CEO: Okay. Thank you all for joining us today. Our Q2 results were in line with our expectations, we continued to make tangible progress strengthening our go-to-market organization. We're actually encouraged by improving execution and a growing sales pipeline. We expect Q3 to mark the trough, followed by a stronger Q4 that supports second half performance, we are maintaining our 2026 guidance. As a next step, we are significantly expanding our sales capacity by hiring hundreds of additional salespeople.
Over the past few weeks, I met with more than 1,000 security leaders at Check Point Engage events in Chicago, Paris, and Singapore. Their message is consistent and unmistakable. Our industry is at an inflection point. AI, and particularly the latest frontier model, is driving a collapse in scarcity of adversarial capabilities. This is democratizing and industrializing sophisticated cyberattacks and challenging many of the assumptions that have guided cybersecurity for decades. We cannot stop AI adoption, we must prepare to defend against sophisticated attacks at unprecedented scale.
At Check Point, securing our customers' AI transformation means executing the fundamentals better than ever while building the next generation of cybersecurity, we must do it in parallel. The fundamentals start with prevention, powered by our ThreatCloud AI intelligence, more than 100 AI agents, and telemetry from millions of enforcement points. Today, I'm excited to introduce the industry's first AI Network Firewall. We believe AI has created a new class of network traffic. It deserves a new class of firewall. The AI Network Firewall gives customers visibility, control, and security for prompts, agent actions, and model interactions. The AI Network Firewall is a part of our AI Defense Plane — a full stack AI security platform continuously trained on our threat research and intelligence and built to protect applications, users, and agents from AI-based attacks.
Beyond AI demand, across our emerging technologies portfolio remains healthy. Subscription revenue grew 12% year-over-year in Q2. We continue to integrate the capabilities from our recent acquisitions across the platform. With that, I'll turn over the call to Roei to review the financials.
Roei Golan, CFO: Thank you, Nadav. The second quarter was as planned with 1% growth in revenues, driven by 12% growth in subscription revenues. Our total revenues reached $674 million, and we're $1 million below the midpoint of our projection as a result of lower product revenues, a lower demand for firewall appliances. When we're looking at our subscription revenues, it reached $333 million, and we're at the midpoint of our projections. Our adjusted free cash flow reached $161 million, $1 million above the midpoint of our projection, and represent 24% of our revenues. Our non-GAAP EPS was $2.55 per diluted share and exceeded our guidance and grew by 8% year-over-year.
As mentioned, we had 1% growth in revenues, while our deferred revenues grew by 7% to $2.025 billion. Our calculated billing totaled to $639 million and was similar to last year. Our Remaining Performance Obligation grew by 7% and reached $2.55 billion. Our current RPO reached $1.6 billion, a 4% increase compared to last year.
Our product revenues declined by 14% in the second quarter, mainly as a result of the disruption from changes made in the go-to-market organization. As we look at the second half of the year, we expect a similar trend in the third quarter with our firewall appliances, while we see significant improvement in our pipeline and qualified opportunities in Q4. We do expect to see a return to growth in product revenues in the fourth quarter.
Subscription revenues continued to accelerate to 12% growth this quarter, driven by strong demand for our emerging technologies, as email security and CTEM continue to have strong demand. In the second quarter, email security, CTEM, and AI security accumulated exceeded 40% growth in ARR year-over-year, while the calculated billing from these products grew by 35% year-over-year.
By geographies, EMEA and America were 44% each, with 12% from Asia Pacific. Our gross profit increased from $585 million to $588 million, representing a gross margin of 87%. The slight decrease in gross margin was explained by higher memory costs. Our Q2 results include approximately $28 million of benefit from R&D grants from the Israeli government. Operating income was strong at $260 million or 39% operating margin. Our non-GAAP net income increased by 1% to $264 million, while GAAP net income reached $194 million. Non-GAAP EPS grew 8% to $2.55, GAAP EPS was $1.87, a 2% increase.
Our cash balances at end of quarter were $4.2 billion of cash and marketable securities and deposits. Adjusted free cash flow reached $161 million. We purchased approximately 2.5 million shares for $325 million this quarter at an average price of $131 per share. The company announced a $2 billion expansion of the share repurchase program.