Greetings and welcome to the Check Point Software Technologies Second Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kip E. Meintzer, Head of Global Investor Relations for Check Point Software Technologies. Thank you, Mr. Meintzer. You may begin.

Thank you, Michelle. I'd like to thank all of you for joining us today to discuss Check Point's 2017 second quarter financial results. Joining me today on the call are Gil Shwed, Founder and CEO, along with our CFO and COO, Tal Payne. As a reminder, this call is webcast live on our website and is recorded for replay. To access the 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 July 26. If you'd like to reach us after the call, please contact Investor Relations by email at kip@checkpoint.com or by phone at +1 (650) 628-2040. Before we begin with management's presentation, I'd like to highlight the following. During the course of the presentation, Check Point's representatives may make certain forward-looking statements. These forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 include or but are not limited to statements related to Check Point's expectations regarding: business, financial performance, and customers; the introduction of new products, programs and the success of those products and programs; the environment for security threats and the trends in the market; demands for our products and services; our expectations regarding taxes; and our business and financial outlook including our guidance for Q3 2017 and full-year 2017. Because these statements pertain to future events they are subject to various risks and uncertainty. Actual results could differ materially from Check Point's current expectations and beliefs. Factors that could cause or contribute to such differences are contained in Check Point's earnings release issued on July 20, 2017, which is available on our website, and other factors and risks, including those discussed in Check Point's most recent Annual Report on Form 20-F, which is on file with the Securities and Exchange Commission. Check Point assumes no obligation to update information concerning its expectations or beliefs, except as required by law. In our press release, which has been posted on our website, we present GAAP and non-GAAP results, along with a reconciliation of such results, as well as the reasons for our presentation of non-GAAP information. Now, it's my pleasure to turn the call over to Tal Payne for the review of the financial results.

Thank you, Kip, and thank you for everyone joining us today. I'm pleased to begin the review of the second quarter. Revenue for the second quarter increased by 8% to $459 million towards the high end of our guidance, and our non-GAAP EPS grew by 16% to $1.26 exceeding the top-end of our guidance. Before I proceed further into the numbers, let me remind you that our GAAP financial results include stock-based compensation expenses, amortization of acquired intangible assets, and acquisition-related expenses, and the related tax effects. Keep in mind that as applicable non-GAAP information is presented excluding these items. Now, let's take a look at the financial highlights for the quarter. Product and software blade revenues increased this quarter by 12% over the same quarter last year, reaching $256 million. We had success in our small and mid-sized enterprise product line as we continue to penetrate to the mid market and new customers. High end was softer due to lower activity in the financial verticals, relating to few large deals that had a tough compare, compared to last year. Our software blade subscription revenues continue to be strong, reaching $118 million and with 27% growth year-over-year. Our software update and maintenance revenues reached $202 million, representing 4% growth year-over-year. Our discount rates remained stable sequentially and even declined slightly year-over-year. Recurring revenue from subscription and updated maintenance continued to grow and now present 70% of our business. Deferred revenues as of June 30, 2017, were $1.065 billion representing a growth of $173 million or 19% growth over June 30, 2016. Short-term deferred revenues increased by 15%. Revenue distribution by geography for the quarter was as follows: 49% of revenues came from Americas, 34% of revenues came from Europe, and the remaining 17% came from Asia Pacific, Japan, Middle East, and Africa region. From a deal size perspective, the number of customer with aggregated transaction value over $1 million were 63 customers this quarter same as last year. Transactions greater than $50,000 or 71% of total order value, similar to the second quarter of 2016. Last year was 72%. Operating margin for the quarter remained steady at 54%. Our income tax rates for the quarter was 18% and decreased from the 20% we had last year. During the quarter, the expected tax regulations in Israel for hi-tech companies has been adopted. We expect the effective annual tax rate to be around 17% as we had previously guided. GAAP net income for the second quarter of 2017 was $188 million or $1.12 per diluted share, an increase of 18% from the second quarter of 2016. Non-GAAP net income for the quarter was $212 million or $1.26 per diluted share, an increase of 16% year-over-year and above the top-end of our guidance. Our cash balances reached $3.806 billion at the end of the quarter. Our cash from operations for the quarter increased by 10% to $226 million. Collection continued to be very strong with DSO of 65 days this quarter. The slight increase in our DSO is the result of a back-end loaded quarter. This quarter, we had cash of total of $3.8 billion as I mentioned before. We continue to implement our share buyback program during the quarter and repurchased approximately 2.3 million shares for a total cost of $248 million. Now let's turn the call over to Gil for his comments.

Thank you, Tal, and good morning to all of you joining us on the call today. As you just heard from Tal, the results for the second quarter were strong with nice revenue growth of 8% and EPS growth of 16%. She has been talking about the future of cyber security for quite some time and what is driving the threat environment. It's a combination of several factors. There is a widespread of attacks that are targeting each and every one of us, the attackers have access to sophisticated attack tools, sometimes the one developed by nation-state organization, hackers of all sorts are utilizing these methods to create targeted attacks, horrific attacks, and large-scale attacks that can shutdown entire country. Just like we've seen in this quarter, in the second quarter we all got a reminder that the future is already here. The high profile attacks to WannaCry and NotPetya has shutdown factories, hospitals, critical infrastructure, and almost the entire country of Ukraine. These attacks affected the lives of many people around the world and are the combination of all the elements that we've been talking about. Nation-State Tool used to deploy widespread attacks which result in a devastating damage in just seconds. While this reality is not surprising, many were not prepared for it. Actually our data shows that more than 93% of enterprises are not using advanced threat prevention capabilities. Coverage for newer platforms like Cloud and Mobile is much worse, only 1% to 2% of companies are using the advanced security for these platforms. The Verizon attack last week and the attack on the USA voter database demonstrate the lack of security being utilized in the cloud. Unlike a server in the data center that may be protected by perimeter security, the server in the Cloud is simply naked at the heart of the Internet. There are many security companies in our industry, most of which are point solution that detect and remediate some forms of attack after their first occurrence and they promote this strategy. This strategy doesn't work. The world needs a moralistic approach which will block the next attack. That's why last quarter we launched the Check Point Infinity Architecture, the first consolidated security platform spanning across network, cloud, and mobile. We executed this region by combining three key elements: one security platform, advanced risk prevention and real time information sharing. The Check Point Infinity launch was met with great enthusiasm last quarter. While many of my meetings with Chief Information Security Officer also saw that challenge I had. This message with the next attack can be prevented and the security can be simple and effective is still ahead of the industry. We have huge potential to provide disruptive change for the market. This change has begun but it is still in the early stages of adoption. Last quarter, we surveyed customers about their security architecture. Not surprisingly the majority of customers still utilize fragmented point solution architecture. This customer reported that it took them an average of 40 days to detect an attack after it occurred and the cost of remediation was $668,000, a single attack. The average smaller group which reported using a consolidated approach reported two days for detection and the cost of $6,800 for remediation. These are the same-sized organization with the same profile but the factoring one to 100 in effectiveness proves the importance of the holistic approach. This holistic approach of the Infinity architecture was introduced last quarter with technologies such as Anti-Ransomware an updated version of our key products. Overall, I believe that we are uniquely positioned in the marketplace and executed well on delivering this new vision for cyber security. As for the business environment, we're seeing a high level of interest and activity in the marketplace, yet we've seen some pockets of softness in important parts of the market. Specifically high-end deals at lower activity while mid-sized deals performed quite well. Now you all know my usual caveat. The future is hard to predict and where many additional factors and challenges that can lead to outperformance or underperformance that must be taken into consideration when we provide our projections. The third quarter is usually quarter with a high level of uncertainty given the summer vacation around the world and the fact that large projects tend to shift to year-end. This year there is an additional level of uncertainty in our forecast. The end of the quarter falls on a very special Israeli holiday, Yom Kippur. During Yom Kippur, the entire country is at a complete shutdown and we won't be able to operate any business activities. Given that and the fact that usually a substantial amount of business arrives in the last day that may result in a significant shift in revenues despite our effort to manage the process. The amount of revenue we derived in the last few days of the quarter in recent quarter were about $30 million. The effect on deferred revenue is significantly higher. We will do our best to process as much as we can to mitigate the effect, however we will need to account for some of that in our projection. So I'm quite optimistic about the outlook for the second half. I will provide a wider range for the third quarter taking these items into consideration. So for the third quarter, we expect revenues in the range of $430 million to $465 million and non-GAAP earnings per share in the range of $1.18 per share to $1.28 per share. GAAP EPS is expected to be approximately $0.15 less. There is no change to the full year outlook. With that, I'd like to thank you once again for joining us on the call today and open the call for your insightful questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Gregg Moskowitz with Cowen and Company. Please proceed with your question.

Okay, thank you very much and good afternoon everyone. Firstly regarding WannaCry and NotPetya have you seen Gil any change in inquiries or activity level since these attacks or would you say that it's status quo at this point?

We've actually seen a change in inquiries and we've got lot of inquiries for technologies like our SandBlast agents and the Anti-Ransomware that's included into that and we actually got a nice number of POCs and customer inquiries based on that.

Okay, thank you. And then you mentioned a software business at the high-end in financial services this quarter. Have any of these deals been downsized or gone away also if you were able to provide an outlet for your financial services business over the remainder of the year that would be very helpful?

I think the pipeline is quite strong and we do have some large deals that are waiting to be closed right now. And I think that the main challenge was that the year before there was a very tough comparison because we had some unusually large deals but I don't see any -- I mean I don't see any change in demand or change in behavior there or not even a big change, not changing the competitive landscape.

Okay. And then just lastly just to clarify because the Q3 guidance is at the midpoint quite a bit below where the Street was you referenced of course the timing of Yom Kippur this year but really my question is getting again back to financial services is any of the lower Q3 guide due to any increase near-term uncertainty around closing deals in that vertical or is it purely due to the religious holiday? Thank you.

No, it's purely based on Yom Kippur. Again for those who have been to Israel at least on Yom Kippur you may understand what they mean. Is the country in entire lock down with something that I don't think you see anywhere else in the world, there is no car driving industry, no shop open nothing. The day is very, very unique day, something that I haven't seen anywhere in the world and that's a big challenge, it's the first time that it's happened the last day of the quarter is on that day and that means that we won't be able to do any order processing on Yom Kippur.

Thank you. Our next question comes from the line of Sterling Auty with JPMorgan. Please proceed with your question.

Great, thanks. This is Jackson Ader on for Sterling, this morning. I just had a question regarding Europe and what is implied for the European growth rate. I guess not necessarily a specific number but does Europe have to pick up in terms of demand for the third quarter guidance or for the full year guidance?

I'm not sure I understand the question.

If we look at the guidance in the second half of the year what -- what kind of performance is the European region kind of baked into for that guidance?

We actually don't provide guidance for specific region so, I don't think we can relate to that.

Okay. Was this quarter more or less backend loaded then the $30 million you normally see in the last few days of this quarter than usual.

Same problem.

This quarter was the same. No difference than other quarter.

Yes.

Thank you. Our next question comes from the line of Shaul Eyal with Oppenheimer. Please proceed with your question.

Thank you. Hi good afternoon guys. Gil, question on Infinity. So Infinity have been selling as you said for about a quarter now still early days but do you think Infinity could be appealing more to the installed base or actually to new customers that could be exploring switching to Check Point's comprehensive platform?

I think Infinity can be appealing to both actually for existing customers it led to elevated level of discussion. It let's just say given a bigger horizon and a bigger -- and a bigger view into the Check Point's vision and I think that's very, very important. When we speak about a new customer Infinity, Infinity is a whole game changer because now we come to them not to product against product or deal against deal but we come to them we have a new approach in security and I think they like it. I think I've tried these messages several times last quarter and then some nice audiences of Chief Information Security Officers. And it was very, very well I mean they like the message, they like the vision. A challenging for them and I think that's a very good for us.

Got it. And then maybe Tal or Gil the high-end softness that you've indicated well its more European or slightly more U.S. driven?

I think it's mainly I would say vector driven right so vertical we saw it's more in the financial in terms of large deals typically very large deals coming from the financial industries so naturally it can fluctuate between quarters Q2 last year was very strong. Growth set is very, very strong Q4 when it comes to the industry so it was a tough compare.

Thank you. Our next question comes from the line of John DiFucci with Jefferies. Please proceed with your question.

Thank you. First question for Gil it still goes back to those high-end softness given the customers desire to purchase more consolidated solutions it seems to sort of conflict with this high-end softness. I'm just curious is even those customers speak of this desire are they for some reason not really trending in this direction or is it really more at the high-end especially you mentioned financial services where there are still more because they have deeper pockets still more focused on of -- best-in-class or best in segment versus a consolidated solution.

So, first I think the bigger the customer is the longer sales cycle is and by the way it's much, much harder to do a consolidated sales because in the very highest customers they have different departments, it's not like one person making the decision, there is many, many, many cases in the financial sectors there is hundreds of people in the security stuff. They’re divided into different departments and they don't do one large consolidated deal so but I do -- but we do have a very nice pipeline of that as well. I think we have, we don't have a shortage of opportunities right now. I think overall in this kind of what people called best of breed and so on. First I mean I'm not using that terminology that much because I don't think it's best of breed when you compare our technologies in all the key sectors to these standalone fragmented products, we score extremely well. Our threat prevention gets the highest scores for threat prevention compared to most products or all products in the marketplace and definitely the ones that are considered the segment leader i.e. I don't know if you saw our mobile security and again, a niche market gets the highest score at 100% attack blocking rate and you will see it in CSO magazine last month and few other reviews in that regard. Just yesterday there was a P.C. Magazine review for Anti-Ransomware technology; that just came for the consumer. It came for enterprises last quarter and it came for consumers just this week and you can see the P.C. Magazine review it says Check Point was simply the best the only products that blocked all Ransomware. So I don't think that this best of breed is actually the right terminology fragmented, dedicated may be but not best of breed. So I think from that perspective now best by the way is challenge which we still sometimes need to convince people because some people might think otherwise and I think we're doing quite a good job and showing that our security capabilities in the key areas are the best in the industry.

Okay, okay and if I might a quick follow-up for Tal. Tal you said the discount rates were down year-over-year. I'm curious is that due more to reduced competitive issues or since you sell largely in U.S. dollars was it more a function of sort of stability in foreign exchange rates where you just didn't have to discount in regions that are non-denominated in U.S. dollar.

So I can first just relate to the fact the rest is speculation right just like when it moved up ahead like two or three type of answers because you don't really know one specific reason. But I know that we are monitoring very closely the discount. If you remember last year I'm talking specifically about the updated maintenance when we saw last year an increasing the discount and we monitor this and we -- you try to manage it as much as you can obviously it's much more complicated like you said you've currency devaluation that affect it and many other factors and the more bundling you have, the more you have discounting request. So in general we say, we're looking very, very closely in the discount and we succeeded to stabilize it and even slightly moving down. So I will call it a stable discount environment. Currency I don't think it made a big shift this quarter there were a few percentage of change against the Euro and Pound and but there was like tens of percentages was a single-digit change. So maybe it's relating to that, but I don't -- I think it was just a well managed good environment in general.

Thank you. Our next question comes from the line of Phil Winslow with Wells Fargo. Please proceed with your question.

Hey guys thanks for taking my question. Just a question for the team about the high-end deals that you talked about here in Q2 that slipped out of the quarter. One of you could give us sense of how those have trended here in Q3 have some of those started to close Q3 or is it someone that's going to take a little bit longer resolve where we have to -- have to wait for Q4.

So, first we had some fluctuations between year-over-year because as Tal mentioned in 2016 we had a huge number of large deals both in the second quarter and even more so in the fourth quarter and these deal tend to fluctuate between quarter-to-quarter. We do or sales team does expect to close some deals that will leap from Q2 to Q3 in July and they already started doing so. So I think so again we've checked our forecast and the sales confidence in the third quarter and the sales team has actually a pretty healthy forecast for their third quarter.

Got it. And then just -- sorry go ahead.

I just want to make it clear, we talked about the fluctuation and less deals and less deal I didn't say that it slipped to Q3.

Got it. Okay, thanks for the clarification. And also Tal just a question on just the timing of the holidays with deferred revenue obviously Gil talked about the impact on revenue and earnings how should we think about any sort of the balance sheet items and any impact there.

Of course what you see in the revenues is significantly higher than deferred revenues you understand because what Gil was relating to that he said that the effects on the revenue when you look at the last few quarters then its more than $30 million obviously would be taking steps to mitigate it and that's what you can see our guidance is not taking into account above $30 million reduction in the revenue. When you look at the balance sheet then there all that relate to update, maintenance, subscription, although that would come, you can't book them, right? So that will affect more of the deferred revenues and therefore I would not check the implied bookings next quarter.

Thank you. Our next question comes from the line of Anne Meisner with Susquehanna International Group. Please proceed with your question.

Yes, thanks. Quick question on the newer appliances, those have now been in the market for over a year with the greater blade bundles. Could you share with us what you're seeing in terms of the annual renewals on those blades? And any observations you can share on renewal rates of those relative to how they might compare to prior generations?

Yes, I would say we remember we don't provide the absolute number as not much meaning because people can jump or change from package to package typically they're moving from a lower package to a higher, we started with next generation firewall, many of them move to next generation threat prevention and working on moving more and more into next generation threat reflection that includes many of their best technology. So that's a general comment. In terms of the percentage we see the same rate of renew on an even slight increase when you look at the second year.

Okay, perfect. And then, Tal, could you just share a bit more detail on the linearity you observed in the quarter? In the prepared comments, you mentioned that business seemed a little bit more back-end-loaded, driving the higher DSO. Was there any sort of pause in the sales cycle as a result of the ransomware attacks? Because we know that kept security teams at enterprises pretty busy this quarter. Is that something you might have observed that could have contributed?

It was minor change right, so I can't read that's why they brought the orders in the beginning of the June versus the end of May really that's the main change, it gets slightly less in May and slightly more in June that's the effect of the DSO. When I'm checking the DSO in the last month, it’s exactly the same for the last five years running between 34 to 35 days. So we have very, very strong collection, we don't have any collection delays really strong you can see from the very strong cash flow that we have. So I won't read too much into it now, nothing dramatic.

But I mean it is correct with some people speculate or say that when your house and the floor is on fire, you are not busy closing deals. And I think some of it maybe evidence is you can expect to utter to the security risk and more cyber attacks like we’ve seen are their people will rush to buy, actually I think in many cases people are slowing down the activities and thinking over their purchasing plans.

Thank you. Our next question comes from the line of Saket Kalia with Barclays. Please proceed with your question.

Hi guys, thanks. Thanks for taking my questions here. Maybe first for you Gil, you spent some time in your prepared remarks kind of talking about how some parts of the market are may be lagging on the consolidated security approach, I guess the question is did you see any change in attach rates of blade packages or any sort of mix shift from higher end blade packages to perhaps lower ones?

Actually the other way around, we are seeing a constant shift to touching a broader set of blades by the way even where things are bundled, people take the bigger bundle, where things are unbundled people buy more of their high-end blade packages and I think that's a very, very good phenomena that we're seeing consistently in the last few quarters. So people are adopting the new technologies, people do understand the value, again it takes time not by the way everybody purchases automatically or immediately activates that. So I think we're working hard to get people to use that and to get the benefit of what they should have and their installed base is especially on the large customers on larger ones, it takes time but they are buying much bigger packages and that's a very good phenomena in terms of getting world a more a safer place.

Got it, got it. And then just my follow-up for you Tal, I guess the question is are you seeing any sort of trade-down effects with the latest appliances, you're about a year into the latest appliance family and I guess just given the strengthen in mid-range and maybe softer results in high-end, I know we said it’s vertical specific but just to cover a basis, do you feel confident that there was -- that there isn't a trade-down effect that's happening?

It's a good question. I mean -- I'm analyzing a lot. But we see the number of units increased significantly, it’s again another quarter of double-digit growth in the number of units. So mathematically, you can say well high-end went slightly down and remember when you talk about the high-end; it’s not tens of thousands of units. So the shift can be a dollar effect definitely but when you analyze all the data point that's yes, you see less unit in the high-end and much more unit in the low-end and mid-end of the market. So there might be some trade-over. But remember it's not the same customers, so it's very hard to say it's actually well these customers at the high-end now he buys mid-end, every quarter is a different customer. So mathematically you see theoretical trade-down. But when you look at the deals, we see that we just had less large deals with this quarter. So that's I think my feeling that it's more relating to that than the trade-down but the trade-down can be another theoretical explanation.

And actually one example when we came up with a new model which supposed to be price lower but with very high performance and we did see a lot of units move to that model. The interesting fact is that the ASP hasn’t changed. So actually it was a good change people bought lower end model, yes the price that we got from it after discount and after all of that was identical, that was actually a good sign of slow trade-down in that specific model.

Thank you. Our next question comes from the line of Erik Suppiger with JP -- I'm sorry with JMP Securities. Please proceed with your question.

Yes thanks. Two questions one did GDPR play a role at all in terms of either increasing demand or did it create any pause. And secondly in light of your guidance reflecting Yom Kippur, how should we think of the outlook for Q4, should we be bringing down the revenues for the year or would we expect that the business that would be delayed at the end of the quarter would just increase the revenues in Q4?

So GDPR does create an interest and people are interested in that and we have I think some nice articles and some nice material about securing the GDPR. I don't know but right now driving a lot of deals and I think in many cases all of Europe where GDPR is the new standard and the new rule starting at 2018, I think it slows down a bit, a little bit, and not accelerated at this point. Even though I think it is a very good driver for future understanding this company needs to put more security and secure infrastructure even more so I think in the long-term it's a positive phenomenon already.

And as far the guidance, we kept the guidance the same for the year. So naturally what we took down is expected to be part of Q4 and those booking will be recorded in the beginning of Q4, the time that we put the booking in the system.

Thank you. Our next question comes from the line of Michael Turits with Raymond James. Please proceed with your question.

Hi guys. Thanks for taking my questions. Two questions one just want to take another shot at the big deal softness, I know that there is tough comp you pointed out and there is obviously some lumpiness but is there something anything fundamental that you can identify in that softness this quarter in terms of real economic driver for that?

No, I don't think there is anything fundamental in the business. I think the business is good. The sales force is working on many accounts and many deals and I think long-term there is no change in the business environment.

And the second question has to do with the guidance for next quarter. First of all I just wanted to specify $30 million, I think you said impact typically from one day or several days, now that $30 million and that the shortfall to consensus guidance is that all going to hit on the product line, is there any reason we should think that maintenance and subscript maintenance and subscription could take some kind of a hit as well?

Okay, two clarification. We didn't say $30 million, we said above $30 million just to make sure, second is majority 99% to 98% majority naturally would come on the product line because when subscription and updated maintenance book income you won’t see in deferred revenues, the effect on the revenues, there is an effect on the revenues but it’s a smaller part of that amount, the majority by far of that amount is from the product line.

Thank you. Our next question comes from the line of Shebly Seyrafi with FBN Securities. Please proceed with your question.

Thank you. Does the Yom Kippur effect this quarter, does it affect more your production or your sales and if it’s your sales maybe you can talk about your exposure, your revenue exposure to Israel?

It doesn't change anything in the sales. The sales people are active all over the world. It does affect our ability to record the sales and the logistics part of supplying the products you have to realize that we get the order. We usually -- the orders are back-end loaded and we get many of the orders in the last couple of days. We process them immediately and in many cases we ship them immediately and that part is done not entirely but almost entirely out of our headquarter in Tel Aviv.

Okay, all right. And the other question I have is your deferred revenue, you said it was I think much higher than $30 million the last few days of the quarter is that correct?

Yes, absolutely.

Tal, can you give us an idea of how much higher it was than $30 million because -- the I know that the deferred revenue total was $1.065 billion which was below consensus of $1.808 billion and so I just want an idea what it would be, if you didn't get that push at the end from deferred?

Now we're actually talking about the next quarter not this quarter so, when you talk about revenues then obviously product booking majority of them with the minute you get the booking you believe it goes to the revenue that's what it’s creates that reduction in the product to Michael comment from before when it comes to subscription and updated maintenance then when you get the booking and then a lot of it coming in the last day and the last two days then that's typically being invoiced and going to the deferred revenue. And significantly more than the $30 million and to Michael comment just because I don't think I answered to Michael regarding the range we didn't drop the guidance in $30 million. The range is $30 million or $35 million. But the drop from the midpoint expected before to the new midpoint is much less it's more around the 13, 14, 15, 16 million right so, we didn't take into account the full hit. We are assuming that we can mitigate some of it.

Thank you. Our next question comes from the line of Ken Talanian with Evercore ISI. Please proceed with your question.

Hi guys. Thanks for taking the question. So first off, I was wondering if you could give us a sense for how far along you are in the refresh of the midmarket customer base.

That's a very a very good question. But I don't know that I have an answer to that I think we can refresh and sell many more to many more customers. I don't think it's necessarily in a refresh we're especially in the mid-market by the way. The mid-market we have a lot of customers, it's a very active market and we market with a lot of untapped potential.

Okay.

And our sales are naturally majority of our installed base is still long the on the -- all their appliances right we launched the new appliances only mid last year. Our installed base is significant so there is still majority of the installed base is not the refresh at all.

We say overall we refreshed from last year again just an order of magnitude 10%, 15% our installed base. If I just look at the amount of the appliances that we sold last year compared to the -- not the all, not the historical installed base but even the active installed base.

That's helpful. And also another question around the high-end. How does the softness that you're seeing in financial vertical impact your ability to grow areas like SandBlast?

I think we have plenty of potential to grow SandBlast. The financial in every sector is again I think we have a very good pipeline. Very good acceptance if you read the actually see the enthusiasm from SandBlast and if you see the reviews for sands for all the parts of SandBlast the network part, the mobile part, the agent part there are very, very good the reviews from NSS, from the press, from every -- are pretty good so, I think we've created here a really good brand in terms of the ability to deliver the highest level of advance for its prevention and I think a lot of potential moving forward.

Thank you. Our next question comes from the line of Karl Keirstead with Deutsche Bank. Please proceed with your question.

Thanks. Maybe one for Tal, one for Gil. Tal, your maintenance revenue growth rate uptick a little bit to 4% from a little bit lower in the prior quarters, is this a function of the increased discounting anniversarying now is that what's going on maybe there's another explanation.

I think it’s relating to the fact that we have strong booking for the last two, three quarters when it comes to all the line items. The decline also helps that I think we -- I think we're executing well and the updated maintenance over the last two quarters and remember the revenues it takes two quarters to start to recognize we saw a decline which we worked so its possibly what you said the anniversary of that decline of that increase of that we saw last year in the discount. In this quarter even slightly move down but the slight move down in the discount rate this quarter probably didn't even affect yet the revenues in that regards because it takes four quarters to get it into the revenue so I will say it's a growth of stabilization of the discount and good renewal rate.

Got it. Okay, that's helpful and then maybe Gil this could be a tough question to answer but would you expect other Israeli based technology companies to be citing this holiday issue on upcoming calls or is there anything unique about the way that Check Point takes and fulfils orders that would make the impact on you guys a little bit greater?

I don't know enough about other companies, I'll tell you what's unique about us. We are one of the only companies that actually delivers product and delivers products almost off the shelf directly to the customers. So it doesn’t take us time to win a deal to customize the product to prepare it and to ship it and therefore the effect I don't think that early were more backend loaded but we ship the products that we get that the orders that we get very fast because we’re a product business. When I look at the other large Israeli companies most of them are not in the same business more than most of them are not product shipment, invest kind of business, most of them are slightly different business model.

Thank you. Our next question comes from the line of James Fish with Piper Jaffray. Please proceed with your question.

Hey, thanks for the question. First can, may be Tal first can you talk about what blades you saw strength in this quarter and if the ranking order you had given in the past has changed in anyway.

And so the first part of the question what strength -- what blade we saw strength and what was the second part.

You said we have given like a ranking order of sort of the top five blades and I'm just curious that's changed at all.

So just, since historically we used to sell blades standalone so there was a ranking of the blades. Now we have a majority is actually buying packages which goes in line with Gil comment that the market consolidation is happening overtime and we started with next generation Firewall that has a certain package and then we moved to next generation threat prevention I would say majority of the customers moved to next generation threat prevention since last year we see more and more customers going to the higher package which we call next generation threat extraction which even if you have that sandblast that well threat protection and so we see more and more customers adopting that I'll remind you this is our focus area, strive to make customers, make sure they're protected by adopting the events threat protection technologies even then in the sandblast which protects them so we see a very nice success there.

Got it. And then may be for Gil, Gil can you talk about what type of demand you saw in the quarter and sort of recent weeks related to customers securing their cloud environments.

I think we see a high level of interest in the cloud. Yes, I think the cloud in many cases is kind of out of control of the general IT and the general security department and I think that's the big challenge of the cloud. I see it almost in every business by the way the large businesses that we cater to that and that we work with most of them, all of them are using the cloud. Almost all of them are using it in the niche area and not inside their core infrastructure. So I think the level of interest in cloud the security is high, the revenues that were deriving from that is okay but it’s little very low compared to the future potential that there is.

Thank you. Our next question comes from the line of Keith Weiss with Morgan Stanley. Please proceed with your question.

Hi, this is Hamza Fodderwala in for Keith Weiss. I just want to focus on the operating expense side for a second. We noticed the top OpEx growth was about 7% this quarter which is the slowest it's been for some time actually since 2014 according to my calculation is this sort of a pullback from the higher investment posture that you guys are making in recent quarters and should we expect this OpEx growth to sustain.

I think we are actually -- we do today a very large number of open position in all parts of the company from R&D to sales. I think what we've seen in the first half of the year is there is some cases, some re-org in some areas; we are putting more emphasis on selling advanced technologies. We are putting more emphasis on selling new customers, we have been doing some changes in the sales, in the sales organization and that resulted in some people leaving, many people joining and today we have a very large number of open position.

Okay. And just maybe one follow-up if I may I noticed based on Tal's commentary earlier in the call that Europe, EMEA grew about 2% to 3%. This quarter, I don't know if I missed this earlier but it was that due to any softness that you saw specific to that region?

I think in Europe we saw very it depends to me it’s very mixed environment depending on the different countries. I don't think there is one there, we've seen countries that have done very well we've seen countries that were a little bit on the weaker side for competitive reasons and others, I'd rather not give country by country numbers.

But I will connect it to one you asked about where were the financial large deals and I said it's in the regions obviously some of them were in Europe yes.

Thank you. Our next question comes from the line of Keith Bachman with BMO Capital Markets. Please proceed with your question.

I want to ask about the product revenues as you look out over the next period of quarters, is there a notion of transitioning your product revenues from an initial sale transaction model to more of a subscription model and if so what might the implications be to that?

So first was absolutely we do have that trend and you can see from this year to last year the subscription part of our technology -- new technology not the maintenance is actually growing quite nicely and you see it’s a bigger and bigger percentage and I think that's a very, very good phenomenon that we turn our business into annuity and not only that, we focus on selling the advanced technologies, that's the core and core of our offering.

Yes sorry, I was referring more to the product and even the appliance level is our notion of moving that more to the subscription, so taking that caught mid-30s kind of revenue model and moving even more so to the subscription side of the base products?

We do have some ideas around that but generally when we sell a product, it is a product again within the product you sell first when we sell, we actually like we sell an appliance today for $10,000 five years ago almost all the $10,000 were product revenue, today big part of this $10,000 is going into subscription because we bundle with the appliance a lot of the advanced security packages. So we breakdown from a revenue recognition standpoint between the two buckets, long-term was more and more into the subscription and annuity products.

Okay. Just the second question I want to ask is more in the SaaS environment or within the context of the SaaS world, what are you seeing your opportunities or challenges in SaaS situations to sell your securities portfolios?

I think there is a little bit of potential in SaaS for example we came up this year with a SandBlast for the Office 365 Cloud environment which is clearly a SaaS implementation of securing the SaaS email environment, there are more areas like this but most of the SaaS environment is still a closed environment and the ability to sell security for that environment are fairly limited.

Thank you. Our next question comes from the line of Jonathan Ho with William Blair. Please proceed with your question.

Hi good morning, I just wanted to understand a little bit better what type of impact are you seeing from Infinity in terms of your win rates?

I think it just started, so I can't say what it says -- what is doing in terms of win rate, I think in terms of opening doors, in terms of getting higher level attention in the organization, I think we're getting a very good acceptance on that, where customers love the idea and want us to give them a broader set and get most of the reactions that we're getting or even when customers are challenging our approach, it’s a very -- both cases it’s an excellent opportunity because we move from the tactical discussion of this product is better than that product and this appliance is faster than the other product. When the other clients do a strategic discussion about how to build security, how to build total security and I think that position us in a completely different way and gets us much broader opportunity in each customer so, I'm very pleased with the reaction I’ve got so far.

Got it. And then you said that maybe you were a little bit ahead of the market in terms of Infinity so, I mean what does it take to sort of catch up and what type of timeframe do you think there will be before it has little bit more of an impact.

I can't say what I mean again, I think right now we're using on almost every customer and we're in the process of educating our people, our channel partner everyone about the value of Infinity, about bringing up Infinity on every deal, about presenting it to every customer. I think we are seeing it as a major door opener, it's a major area for discussion and we also have some good ideas about how to create more business surround it and not just as that as an architecture and product sale as product and so how to bridge these two together. I think overall it will have a very good impact.

Thank you. And our final question comes from the line of Ben Bollin with Cleveland Research. Please proceed with your question.

Good afternoon. Thanks for taking my call. My question when you look at your overall business can you discuss the revenue opportunity across the segments should a customer go from a 100% firm based private data center deployment to a full cloud model specifically how do you look at the lifetime value of that customer in the different scenarios and how does the revenue mix look across your different segments from one to the other and then I have a follow-up.

I think right now the majority of our revenues are from the customer data center from the on-premise things most of the large customers by the way that's where most of their data centers are. They are using cloud as a new ancillary technologies, not as the core data center. Yes, I think long term I still don't know how this business model will looks like clearly there's a lot of potential to expand to the cloud to mobile to other areas but they are but it is right now and it's very, very early steps.

And then as a follow-up do you see any particular geography certain types of customers, verticals for instance who are more willing to embrace clouds first strategies versus prem-based deployments. Thanks.

Not think as particular we have some again we have some customers from all over the world from all different sectors from all different segments of the market so I don't know that I can say that's specifically to one or the other sector. I think the benefits which we bring to all these environments is the fact that customers can manage their entire security estate and their entire security policy from one console using one enterprise policy and get control over that and that's something that's today really, really missing in the cloud. I think customers are fighting today to get hold of what they actually have in the cloud before they even start to secure them.

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Meintzer for closing remarks.

Thanks everybody for attending the call today. We look forward during the quarter to seeing you at conferences and also addressing any questions you might have on calls. Have a great day and we'll see you throughout the quarter. Bye-bye.

This completes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.