Kip Meintzer Tal Payne - Chief Financial Officer Gil Shwed - Co-Founder, Executive Chairman and Chief Executive Officer

Sterling P. Auty - JP Morgan Chase & Co, Research Division Shaul Eyal - Oppenheimer & Co. Inc., Research Division Gregg S. Moskowitz - Cowen and Company, LLC, Research Division Jonathan B. Ruykhaver - Stephens Inc., Research Division Joseph F. Bonner - Argus Research Company Robert P. Breza - RBC Capital Markets, LLC, Research Division Rob D. Owens - Pacific Crest Securities, Inc., Research Division Michael Turits - Raymond James & Associates, Inc., Research Division Aaron Schwartz - Jefferies LLC, Research Division Daniel H. Ives - FBR Capital Markets & Co., Research Division Keith Weiss - Morgan Stanley, Research Division Shebly Seyrafi - FBN Securities, Inc., Research Division Brad A. Zelnick - Macquarie Research Gregory Dunham - Goldman Sachs Group Inc., Research Division Gray Powell - Wells Fargo Securities, LLC, Research Division Tal Liani - BofA Merrill Lynch, Research Division Brent Thill - UBS Investment Bank, Research Division

Greetings, and welcome to the Check Point Software Third Quarter 2013 Earnings Conference Call. [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 of Investor Relations for Check Point Software Technologies. Thank you. Mr. Meintzer, you may begin.

Thank you. I'd like to thank all of you for joining us today to discuss Check Point's financial results for the third quarter of 2013. Joining me today on the call are Gil Shwed, founder, Chairman and CEO; along with our Chief Financial Officer, Tal Payne. As a reminder, this call is being webcast live on our website and is being recorded for replay. To access this 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 October 28th. If you'd like to reach us after the call, please contact Investor Relations by emailing 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 items. During the course of this call, Check Point representatives will make certain forward-looking statements. These forward-looking statements may include our expectations regarding demand for our security products, our expectations regarding the introduction of new products and programs and the success of those products and programs and our expectations regarding our business and financial outlook. Other statements, which may be made in response to questions, which refer to our beliefs, plans and expectations or intentions, are also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, because these statements pertain to future events that are subject to various risks and uncertainty and actual results could differ materially from Check Point's current expectations and beliefs. Factors that could cause or contribute to such differences include, but are not limited to, the risks discussed in Check Point's latest annual report on Form 20-F. As a reminder, Check Point assumes no obligation to update its forward-looking statements except as required by law. And our press release, which has been posted on our website, represent GAAP and non-GAAP results, along with reconciliation tables, which highlight this data as well as the reasons for our GAAP presentation -- our presentation of non-GAAP information. Now, I'd like to turn the call over to Check Point's Chief Financial Officer, Tal Payne, for a review of the financial results.

Thank you, Kip, and hello, everyone. I'd like to thank you all for joining us today for a review of the third quarter financial results. Our revenues for the third quarter increased by 4% year-over-year, and non-GAAP EPS grew 8% to $0.85, both in the upper half of our guidance. Before I proceed further into the numbers, let me remind you that our third quarter GAAP financial results include noncash equity-based compensation charges, amortization of acquired intangible assets and the related tax effects. Keep in mind that non-GAAP information is presented excluding these items. Now let's take a look at the financial highlights for the quarter. In the quarter, our revenues reached $344.1 million compared to $332.4 million in the third quarter of 2012, representing an increase of 4%. This growth was driven by our software update, maintenance and subscription revenues. These revenues reached $223 million, growing 6% year-over-year. The growth was driven by our threat prevention annuity blade, with Application Control and Anti-Bot leading the growth. Product revenues increased slightly this quarter to $121.1 million. This quarter, we have seen a shift towards the data center family as well as great demand for our new small appliances that were launched last quarter. As a reminder, most of our blade products that were launched in the last few years are being sold as subscription, including our IPS, Application Control, Anti-Bot and others. As a result, the revenues of these blades are presented as part of the service revenues in our P&L. Taking those revenues as part of our product revenues would have shown a nice high single-digit growth. Deferred revenues as of September 30, 2013, were $567 million, an increase of $61 million or 12% over September 30, 2012. Revenue distribution by geography for the quarter was as follows. The Americas contributed 46% of revenues, Europe contributed 36% and Asia Pacific, Japan, Middle East and Africa region contributed the remaining 18%. From a deal size and quantity perspective this quarter, transactions greater than $50,000 accounted for 69% of total order value compared to 66% in the same period a year ago. We had 40 customers with transactions greater than $1 million compared to 31 in the same period last year. Our non-GAAP operating margin this quarter continued to be strong at 58%. This was achieved although we were affected by the changes in the dollar exchange rate against some currencies around the world, mainly the euro, the Israeli shekel and the yen. Our effective tax rate is about 20%. In August this year, a new tax legislation was adopted in Israel. From next year, the corporate tax rate in Israel will increase to 25% -- from 25% to 26.5% and the preferred tax rate from 12.5% to 16%. As a result, we expect our effective tax rate to increase in 2014 to approximately 22%. GAAP net income for the third quarter of 2013 increased to $159.7 million from $152.4 million in the third quarter last year. GAAP earnings per share increased to $0.80 from $0.73 per diluted share in the same period last year. Non-GAAP net income for the quarter was $168.9 million or $0.85 per diluted share, up from $164.1 million or $0.79 per diluted share in the same period a year ago. Non-GAAP earnings per share were towards the top of our guidance, representing 8% growth year-over-year. Our cash balance has reached $3,664,000,000 at the end of the quarter. Our cash from operations this quarter was $195.5 million, an increase of 8% from the $180.5 million -- $180.4 million in the third quarter a year ago. Collections continued to be strong and our DSO was 70 days, similar to the previous quarter. We fully hedged our balance sheet against currency fluctuations. During the quarter, the dollar weakened against most currencies around the world, resulting in a hedge income in our cash flow with no material effect on our P&L as expected. During the quarter, we repurchased approximately 2.3 million shares for a total cost of $128.3 million. Now let's turn the call over to Gil for his thoughts on the third quarter.

Thank you, Tal, and thank you, everyone, for joining us on the call today. Tal addressed the financial results. Now we would like to provide some further information to you about our business and products. The first quarter, despite being the summer quarter, was a very active one for us. Our appliances continued to perform well, with the main strength coming from 2 new product families, the low-end appliances and the data center appliances. The low-end appliances, the 600 and 1100 series, are targeted for small offices and branch offices. We launched the new families in the second quarter, and they've enjoyed the very warm welcome in the marketplace. We received enthusiastic review last quarter and sales continued to ramp up, with growth this quarter of over 40%. We intend to leverage this success and invest in this segment by starting a dedicated group to serve these market segments. An even more impressive sales increase came from our data center appliances, our 21000 series and the recently announced 13500 model. This appliance group is deployed in the most demanding data center environment, and they performed extremely well this quarter with healthy growth. Many customers have chosen to deploy this newer, higher end model instead of lower end ones. This is very good news. It reaches also the most competitive and lucrative subsegment of our market. While we talk a lot about the demand for our security appliances, they are only the delivery vehicle for our core technology, the advanced security software. This quarter, we delivered our most important product of the year, the R77 release of our Software Blade Architecture, which delivered over 50 important product announcements, including the new HyperSpect performance technology that increases performance of advanced security operation by over 50% on the same gateway. Even more important is the introduction of our new Threat Emulation software blades, a truly innovative blade that allows an organization to fight against the most sophisticated advanced persistent threats or APTs. These attacks often penetrate the network by hiding malicious code inside documents that look innocent. These new software blades can send every incoming file to be emulated in a sandbox across multiple operating system versions in our ThreatCloud security service to identify these hidden threats. This is a fast-growing segment of the security industry. Our R77 release is the first to bring this technology to the market in a simple and an integrated manner, creating the great value proposition that makes it available and affordable to almost every customer. So overall, I'm very pleased with the business activity and the results we experienced in the third quarter. With that said, this brings me to the financial outlook. You know my regular caveat. It's always all hard to predict the future. There are many factors that could point to better results and there are many reasons to be even more cautious. I would like to provide you with our projections for the fourth quarter. Revenues are expected to be in the range of $365 million to $395 million and non-GAAP earnings per share in the range of $0.90 to $0.98 per share. These projections are consistent or slightly higher than the annual guidance previously provided. GAAP EPS is expected to be approximately $0.06 less. 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.

[Operator Instructions] Our first question today is coming from Sterling Auty from JPMorgan Chase. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Gil, wanted to start with the data center solution. Can you just walk through maybe what the use case is per customer? Is this a replacement, and why you're seeing the uptick in demand? Could it be the fall off in performance from Juniper or some of the other competition?

So first, the data center appliances are the real high end of our industry. There's one more model that's higher than this, and that's the 61000 that we call super high end that's targeted at really higher-end services and telcos, et cetera. So the data center is one level below that, and it's the most, as I said, it's the most lucrative segment of our industry. Now data center appliances are usually not used just to phase outbound Internet. They are usually used to phase internal segments within the network or between the rest of the organization network and the data center or the private cloud. And there are -- I mean, typically, it's, of course, classified by very high performance, but usually also by very high reliability requirements, usually multiple power supply and a lot of durability and reliability requirement in the marketplace. Now it's not new to us. We are selling data center appliances for a long time. If you look at the last year, we've upgraded some of the models. We had the 21400 model, we added the 21600, the 21700 model that have been pretty successful that started the Q3 or Q4 last year, October, I think, last year. Then in the beginning of the year, we added more high performance with the 21700, and then we added the 13500, which is at similar performance at a relatively lower price point with some missing functionality like low latency accelerators and things like that, but again, very high performance. I think the performance is the winning factor here. I think customers are seeing that we are delivering on their performance requirements. I don't think it's against a particular competitor. I think it's, in general, giving a very good functionality and a good price performance. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Okay, and one follow-up. So the revenues plus change in deferred revenue accelerated this quarter. So billings has accelerated, but one thing we talked about all year is the product and license revenue. It was up slightly on a year-over-year basis. But with the product portfolio, the way you have set up, with the introduction of data center and with the small office, branch office solutions, should we see the products that part of the revenue line accelerate in the fourth quarter? And how should we think about that even beyond the fourth quarter?

I always say to remember to look at the total revenues exactly because we have so many software blades that are bundled into these appliances, and some appliances have higher percentage of software blades, has dollar value in them, and it can ship between quarters. This quarter, for example, it moved slightly up. Some quarters can move slightly down. So I also always recommend to take the total revenues and look at it as a whole. Software blades is, as you said, it's part of the deferred revenue. You talked of acceleration there, it's doing 12%. It was a good quarter also in booking and -- that I will say to look at them together. Bear in mind that software blades are now over 22%, 23% already of our service line, so it's quite a significant number. And that's why in my script, you see that I related to the fact that when we look at the software blade as part of the product, which is, in actuality, is what it is because it's all the new products that have been launched, a majority of them being launched as a subscription, the product revenues as a whole actually grew in high single digits.

Our next question is coming from Shaul Eyal from Oppenheimer. Shaul Eyal - Oppenheimer & Co. Inc., Research Division: I want to try, maybe on the heels of Sterling's question, try maybe [ph] and ask it from a different perspective. I think the recent solid product performance we had seen by you guys over the past couple of quarters, is that driven by pent-up demand? Is it product refreshes or is it both, all of the above?

I think it's probably a combination. Bear in mind that we didn't talk about it, but the whole macroeconomic is also -- plays into that. We launched a few new products. All the new products are quite successful. If you relate it to the data center, the 13500, the 21700, the small business appliances, the 600 and the 1100. So that's obviously great to come with good products that the market accept quite quickly, which translates into dollars in the product, so that's obviously very nice. Software blades continue to grow. I don't know if it's -- it's very hard to know if it's a refresh cycle or not. You know we don't have that type of data. It's very hard to know. And macroeconomics, it's the -- effect [ph] as well. It looks like Europe is getting slightly stronger. It's the second quarter that they have good results. America is stable. AMA is more current [ph] there. There's a lot of currency effect in AMA. Many currencies in Asia Pacific, Japan, Australia, India, the local currency were devaluated against the dollar, which creates more pressures there, so it was tougher time for Asia in general. Shaul Eyal - Oppenheimer & Co. Inc., Research Division: Got it. And Tal, can you break for us the percentage in software updates and maintenance services?

So I said it's about 22%, 23%, 24% out of the service line, so you can take out of the $223 million is the amount.

Our next question today is coming from Gregg Moskowitz from Cowen and Company. Gregg S. Moskowitz - Cowen and Company, LLC, Research Division: Gil, you have mentioned that your small appliance products, in other words, your 600 and 1100 series, were up 40%. I just wanted to clarify whether that what sequential or year-over-year. And then also, I believe you alluded to a dedicated market focus for these appliances. Could you please elaborate on that?

Sure. So I think the 40% was year-over-year. And the dedicated group is, we were starting to recruit a group of people that will focus on the small business channel, the small business customers, mainly around sales. We've already recruited the head of that group as far as he's in the U.S. And then hopefully, we'll start to see more -- I mean, I've seen the momentum we've outdoing, but just the release of the new products has been great in the last 2 quarters, and I think we should capitalize on that, because it was a huge opportunity in the low end of our marketplace. Gregg S. Moskowitz - Cowen and Company, LLC, Research Division: Okay, great. And you also did talk about your Threat Emulation service as part of R77, and you've had an on-premise offering there for a few months. Just as of last month, you came out with a cloud-based service. So what are the early feedback's been for each of these offerings? And I guess more importantly, what are your expectations when you think about adoption going forward?

Threat Emulation is -- we just released it in August. We released it -- again, it's available as a cloud service or as an on-premise appliance for the customers. We believe that the cloud service is very promising because it allows the customers to deploy to the minimal investment, just paying a subscription period, a number of 5% [ph] we tend to be scanned. It's very early to say. Keep in mind that the really large customers don't usually -- it takes them a long time to deploy a new version and we need R77 for that. But overall, the feedback from the several places that we've tried, the software are very, very good. It has a very high catch rate. It showed -- it, again, it catches zero-day threats. So these are threats that are unknown to the industry, some day threats that are targeted against single company, and that's the first time that companies can actually get that kind of technology without a huge investment in personnel and capital equipment and changing their network topology. They can actually plug it to their existing firewall security infrastructure, and you get the results with no risk and very little investment.

Our next question today is coming from Jonathan Ruykhaver with Stephens. Jonathan B. Ruykhaver - Stephens Inc., Research Division: Can you comment on the contribution from the IP appliances to product revenue in the quarter? And then secondly, what kind of impact does the end of sales announcement on the IP appliances have on product revenue in 4Q, if any?

If the question is what's the numbers of the IP at this moment of time, it's very, very immaterial. It already dropped to hundreds of units, so it pretty much has a great transition into the new appliances, these -- the low, mid, high, the full transition of the customer. There was end-of-life, there was end of sales that announced at the end of Q2. We saw some acquisitions there, but really nothing material at all.

Keep in mind though that it's -- now we're like 4 years since we've acquired that business unit, the IP series appliances. And these 4 years, we didn't have any new models on the IP series. So that transition is going rapidly -- I mean, it's going steadily and in a very manageable way for a long time.

Our next question is coming from Robert Breza from RBC Capital Markets. Joseph F. Bonner - Argus Research Company: Gil, I wonder if you could just comment a little bit about, as you think about Q4 growth, maybe the shift from the data center and low-end appliances, but how you think about it more from a geographical perspective. Are you seeing any pressure per se in any one geography? Or how should we think about the growth in Q4 going into the different geographies?

I don't have any particulars in the geographies. I can tell you what we've seen so far. I think the last few quarters have been solid for both Europe and the U.S., each one behaving slightly differently. But overall, they performed according to plan. In Asia, we saw a lot of pressure from the -- actually from the economies. And there are certain countries in Asia -- there was a big devaluation of the currency in these countries, and we've actually sold, in some cases, more product, but getting less dollars from that based on the exchange rate. Overall, we expect the fourth quarter to be a good one. I mean, I hope for the best. I think there's -- I think what we gave here is a very realistic view of the marketplace. We're still -- given the world economy, not just in Asia, there is a lot of risks in it. But like always, there's also a lot of upside. I think we can and always strive to do better. Robert P. Breza - RBC Capital Markets, LLC, Research Division: Maybe one quick follow-up for Tal. I know you gave us the tax rate of 22% for next year or -- I was just wondering, how do you see the taxes, maybe on a go-forward basis, meaning -- I know it's very difficult to predict how it goes forward, but should we expect the tax rate to increase in 2015, or how would you just qualitatively, not quantitatively, think about taxes in 2015?

No, I think -- remember, the taxes were very stable for many, many years. We were around 20%. Obviously, it can go up 1% or down 1% in the financial report. But in general, we were around 20% and expect it to stabilize around 22%, but don't expect any material change.

Our next question today is coming from Rob Owens from Pacific Ocean (sic) [Crest]. Rob D. Owens - Pacific Crest Securities, Inc., Research Division: Tal, looking at services revenue and specifically, if we kind of back out the implied labor, I mean, why aren't we seeing more maintenance and professional services growth at this point? Is this pro services related because I know you know don't break that out within the number, or is this more maintenance related?

This update is maintenance related because that's the majority of the rest of the amount. Obviously, remember that sometimes it can fluctuate because of professional service, but that's typically a Q4 phenomena. So in general, it's update in maintenance, and it's linked to the fact that if your product growth is negative or flat, then it affects the tax rate and therefore, slows down the growth of the update in maintenance line. Rob D. Owens - Pacific Crest Securities, Inc., Research Division: Has there been any change to maintenance renewal rates or anything because you guys are still doing a meaningful amount, $500 million a year in products? So I would think that that maintenance attached to new product sales would help increase that category more than 1% year-over-year.

So renewal rates remained the same, no changes there, so a very stable, good high renewal rate, so we don't see any change there. Bear in mind that many of the new product sales are actually refresh, and refresh did not create a new stream of update in maintenance revenues.

Our next question today is coming from Michael Turits from Raymond James. Michael Turits - Raymond James & Associates, Inc., Research Division: Two questions. First, you've been commenting in the past on unit growth in the ASPs. Where were you in terms of unit growth this past -- which have been negative in ASPs. And then my second question is just on the 4Q guide, which looks like on the 10%, 11% sequentially as sort of the same as last year, which was kind of a weak fourth quarter. Is that a function of more moving to the deferred line as you do more services?

I didn't understand the second question. Let me start with answering to the first question. A few quarters ago, when we -- remember, we don't report ASPs or number of units. We did last year because there was a big shift between -- a big reduction in ASP and a big increase in the units. That's why we provided it, and in general, we don't provide it. But I can say, nothing dramatic to report there. We came back to the stable zone with some quarters. We have increased units and some mixed shift in which we do the ASP in some quarters, the other way around, but we're back to normal when it comes to that.

In terms of the units, we don't report units, but I can tell you in general that the unit is stable if you include the low-end appliances as going up drastically. Without the low-end appliances, I think it's fairly stable the way we expected it. Of course, we want more, and we'll always strive to do more. Michael Turits - Raymond James & Associates, Inc., Research Division: Okay. So I understand unit growth was -- units were stable, meaning flat year-over-year?

The underpriced units are stable. Again, if I include the low-end units, it went drastically up because these products have really done well in terms of number of unit. And again, in the past, we also been confident, so I don't want to mislead on that. In the past, when we said that the units are stable or going up or going down, whatever, it was excluding the low-end appliances. Michael Turits - Raymond James & Associates, Inc., Research Division: Okay. And then my second question, Tal, was just that the guide is for about 10% sequential revenue growth, the midpoint. Last year, it is 11%, which is below your seasonal. So is this kind of slower fourth quarter sequential ramp a function of an increasing amount that's going to the balance sheet because otherwise, again if things seem to be improving, I would've maybe thought of a stronger fourth quarter sequential ramp.

I mean, it's too much math into your equation. It's really a range. It's a year that the economy is not very stable. You see our growth rate, and we took the range that we believe is a realistic one.

Our next question today is coming from Aaron Schwartz from Jefferies. Aaron Schwartz - Jefferies LLC, Research Division: Tal, I think you've mentioned that you saw a slightly higher uptick in revenue being carved out as deferred this quarter than previous quarters. Is that correct and if so, can you just walk through the different deferral rates on the product line? Where is the biggest variance between the low-end and high-end for that revenue deferral rate?

It depends sometimes which appliance but I'll say this quarter was slightly higher but nothing dramatic to report about. I just wanted to remind you that different products sometimes have different portion of software blades value attached to it and therefore, it can affect the product revenues and goes slightly more to deferred. But it wasn't millions of dollars, as just been presented, it was slightly higher. Obviously, as a result, it goes to the deferred revenues and recognized over 4 quarters. Aaron Schwartz - Jefferies LLC, Research Division: Okay. And then second question if I could. On the software blade renewal rates, can you either talk at a high-level where that is and specifically, I was interested in terms of the package blade offering versus individual blade offering, if you're seeing a difference, I guess, on the data center blades and then the renewal rates within those 2 different blade offerings.

Most of them are similar and we talked about it before where the bundled was around 40% and the unbundled was around 60%. Remember, unbundled for us is also the second year of renewal. And we saw an improvement there. It moved up. It's now around 65%. So it's slightly moving up but remember, this is a renewal of packages. Typically, majority buy packages, not singular. So as a result, they can use 2 out of 3, which mathematically can show a lower renewal rate. So it's not really 65%, it's probably significantly higher. Aaron Schwartz - Jefferies LLC, Research Division: So just to clarify, if you see an initial sale of package, are customers, as you said, typically renewing individual blade within the package or the entire package?

They can do both.

But typically, we see customers renewing the entire package. Keep in mind that, from time to time, we're changing the models and sometimes we sell a model with just 1 blade. Sometimes, we -- actually not sometimes, if you look at the trade and the trend of the software blades, we are releasing new software blades every year and usually the trend is that we bundle more blade and creates -- and therefore creates packages for those blades. So if we started with 1 blade, now we are selling packages for 3 blades for example. For threat prevention, for example.

Our next question today is coming from Daniel Ives from FBR Capital Markets. Daniel H. Ives - FBR Capital Markets & Co., Research Division: Gil, any new thoughts on buybacks or acquisitions?

We continue to think about that. I don't know if there's new thoughts, but there's definitely activity around that. I'm sure you all know that we've increased our buyback amount at the beginning of the year and we are executing according to the new plan. In terms of acquisition, we continue to research the market. We recently appointed a new Head of Corporate Development for Check Point so the level of activity that I've seen has actually increased and, hopefully, one day we'll find the right acquisition target. Daniel H. Ives - FBR Capital Markets & Co., Research Division: And just to -- I mean, it was asked in a different way but in terms of competition, obviously, it seems like you guys are starting to feel better, seeing better results, especially on the products, on some of the annuity blades, while some of your competitors have obviously seen some hiccups or speed bumps. So do you think this is the market or do you feel like there's some regain of share or changes in the market given some of the success you're having on the annuity blades?

I think we're doing okay. I think we can do better. I don't think that -- I think for our competitors, what we have, that they are losing share and we are gaining share drastically against them but we also have some competitors that are growing fairly fast and I always expect us to do better. So I'm very happy, pleased with the results. I think we're doing well. We're doing quite well competitively but I think we can and should do better in the future.

Our next question today is coming from Keith Weiss from Morgan Stanley. Keith Weiss - Morgan Stanley, Research Division: Maybe one for Gil and one for Tal. For Gil, as you go -- as you focus more and more on the data center space, are you noticing any sort of emerging trends or changes in the way if you were looking to adopt software? And the 2 specific trends that I would be just thinking to was, are guys adopting more virtual appliances or are guys starting to talk to you more about the idea of software-defined networking?

These are 2 interesting areas that we are very active on, both from the SDN, the software-defined network, which we don't have yet new products on but we are very active in learning and being part of that. We have our own virtual systems. We have all the types of offerings for virtualization. In terms of volumes of sales, this is not high. People talk about it but don't put their dollars there in terms of security. But it doesn't mean that they don't protect data centers. They do protect data centers and we are seeing, I mean, as we discussed, a lot of success in the data center area. Keith Weiss - Morgan Stanley, Research Division: Got it. And then for Tal, year-to-date, you guys have seen a very nice free cash flow growth. I have almost 19% free cash flow growth year-to-date. And a lot of it comes from better working capital. How should we think about that on a going forward basis? To what degree would that be sustainable from just, I guess, more of a build-up of revenues under the deferred revenue line versus how much should we expect to kind of get normalized down where cash flow would grow more in line with what's going on in the income statement?

It should grow in line with the income statement as a general long-term comment. The growth in the income should be the growth in the cash flow because we don't have many other type of investments. Obviously, there can be sometimes shift between quarter-to-quarter, the tax payments for example, during the year, they can be lower, and then you have to have one big payment in Q1, typically. So that can create shift throughout the year. But in general, you're right, it should be in line with income.

Our next question today is coming from Shebly Seyrafi from FBN Securities. Shebly Seyrafi - FBN Securities, Inc., Research Division: So your revenue in the Americas decelerated according to my estimates from around 11% growth in Q2 to around 6% in Q3. And I'm wondering, how much of this do you think is due to the federal sector? And maybe if you can elaborate on what you're seeing from the federal side. And I also recall that I think last quarter, you were gaining some ground against Palo Alto in the Americas and less so in Europe. Did that change in Q3?

Actually, I know you tried to copy the numbers from the P&L but that's not the reality. Booking actually grew, grew nicely. And we're very much in line with the growth that we saw in Europe. So sometimes in the P&L, you have the timing, revenue recognition, services being recognized over a year. So there's no full correlation between the booking and the revenues. There's a gap in between.

But overall, our business in the U.S. is quite well and definitely not shrink. It's actually been doing okay. Shebly Seyrafi - FBN Securities, Inc., Research Division: But your competitive engagements against Palo Alto, how did that change in the Americas?

I don't know if it changed much. I mean, again, the markets remain competitive. I think we are competing quite well. I'm hearing good things about our success in the competition with them. Shebly Seyrafi - FBN Securities, Inc., Research Division: Last one if I can. Finalizing a new hot, relatively hot IPO, you compete against them with your Threat Emulation blade, doing around $200 million or so per year. Talk about your upside potential with that Threat Emulation blade.

I think we've really just started to get into that market. It clearly shows the potential, and there's a big potential on that. I think what we have is a very, very compelling offer. You don't need to look just at high-end installations, putting very, very expensive equipment and locating it in one data center instead of multiple. You can just get the quality and the sophistication of Threat Emulation service on every device for every type of business, large or small, with very little investment. And so I'm very optimistic about it, but keep in mind that it will take a long time because today, this mark -- market is characterized by being relatively high end. It's not common that every customer installs these kinds of devices. The technology is very new for us and I think for many of the other players in the marketplace. So it will take some time. But clearly, I think our solutions show that when you incorporate that, it can create great value. I think with these similar things in the IPS market when, today, we actually ship more units with IPS with higher quality than almost any of our competitors, standalone or integrated, and I think we've seen a clear shift in that industry from standalone devices to integrated solution. By the way, Threat Emulation, technology-wise, is different than IPS. It's something, unlike IPS that you can run in a lot of dedicated devices and so on, you do need some of the sophistication and power that's provided by the cloud service that we have.

Our next question today is coming from Brad Zelnick from Macquarie. Brad A. Zelnick - Macquarie Research: Gil, during the quarter, we had actually heard from some of your partners that incentives were changing in terms of what you're paying to the channel. Is there anything that you could tell us? Just we're surprised actually to see margins continue to hold up so well and thought that there might be risk to margins if in case that we're accurate. Can you just maybe comment on your go-to-market and how you think about incentivizing the channel, if anything's really changing there, to keep up with the FireEyes and the Palo Altos.

In terms of the channel, I don't think that there are any major changes. We keep doing small changes and small trials of different incentives to the channel to see how we can make them happier when they sell our technology. We've actually -- many of the trials that we did were late last year, some were in the beginning of this year, but again, nothing is major that's changing the economy of the channel so far. Brad A. Zelnick - Macquarie Research: And just one for Tal. Tal, on the Israeli tax authority, can you just give us an update? I think there was supposed to be a development sometime pending in November. So we're not quite there yet but can you just remind us on what's on the table in terms of alleviating potential constraints on your ability to return cash to shareholders?

That's a long one. I'll just say, as you say, now, we have until mid-November an ability, if you wish, to pay lower taxes in order to release or have ability to distribute your cash in the future without having tax implication. I'll remind you that we can distribute it anyway. This just means that in the future, if we dip into that bucket, which we don't need to, but if we dip into this bucket, there's a tax event and you can choose to go now and pay the taxes in advance and therefore get a discount; that's the idea in the new law. There's a consideration for it and considerations against it, and we have pretty much until mid of November to make a decision, and we really haven't decided yet.

Our next question today is coming from Greg Dunham from Goldman Sachs. Gregory Dunham - Goldman Sachs Group Inc., Research Division: First on product gross margins. Those have been relatively stable, only down 90 basis points from last year, yet you're coming out with a mix of offering at the low-end, at the high end. How should we think about product gross margins as we go forward and then a second, just a clarification, what was the annuity blade growth? I know you gave the mix, I just want to make sure I have the growth number as well.

So the mix, obviously, it's very hard to know what will be the mix in the future. We are not focusing on gross margin or operating margin. We're focusing on gross profit and operating and net income. That's the goal here, to increase the revenues and to continue to increase our profit. So if margin goes slightly down because we're very successful in the SMB market or in the small business, a great job because we penetrated into a large potential market. So it's not necessarily bad if your margins go down or move up. So we're not focused on the margin. We keep stability because while there's a mix, the mix so far can move it few percent up or few percent down, but nothing dramatic, and I don't think it will move dramatically anyway. And to the software blade growth, we don't provide the growth every quarter. I can tell you it was a nice double-digits again.

Our next question is coming from Gray Powell from Wells Fargo Securities. Gray Powell - Wells Fargo Securities, LLC, Research Division: So yes, you mentioned strength in the small appliance line that you introduced last quarter. Do you think that was more of a function of the market doing well or do you think that you're taking share from other players in the SMB side of the space.

I think it's clearly taking share. I don't think that the SMB market has grown. I think that after many years, we introduced a new innovative product. If you remember, the Network World review rated our product as the first version of this kind of product, way ahead of the competition, again, against companies that invest in this market segment. And I think free market reacted to that with a very nice uptick in sales. We still have a long way to go until it becomes sizable dollar-wise. And I think, virtually, we invest in a group that will focus on that, that will recruit the channel, but clearly, the new products prove that we can be the best in that market segment and we should, as much as we can, capitalize it, of course, without defocusing the company from the data center and the enterprise and the rest of our marketplace. Gray Powell - Wells Fargo Securities, LLC, Research Division: Got it. That's very helpful. And then on the new Threat Emulation blade, I know it's relatively early but should we think about that as getting sort of the same penetration as IPS or Application Control over time?

I think it's way too early to say. It's not bundled with the product, so it's not that every customer can practically get it. Every customer can activate it, which we encourage customers to do, but I think it's still too early to say. It's new market, it's different market dynamics, it's different kind of technology like it's not in the traditional network security markets. We have old technology operates on a micro and nanosecond basis on every packet, which is the market when you take the whole side and analyzes it. And yes, while we are much, much faster than any -- than other competitive offering, that it takes them many minutes and sometimes hours to respond. We can respond within a minute; it's still microsecond to minute. So the behavior of the market and how it will work is still to be decided but I think it's a very innovative service. You're all invited to try. You can send -- if you have a suspicious e-mail, just send it to threat@checkpoint.com and you'll receive an analysis of malware. So if you received an attachment from someone you don't know, just send it to threat@checkpoint.com and you'll receive a good analysis of the potential threat in it.

Our next question today is coming from Tal Liani from Bank of America Merrill Lynch. Tal Liani - BofA Merrill Lynch, Research Division: The question I have is about kind of understanding what happened last year and it's more kind of long-term question about the strategy. Going into this year, we expected, first, a strong first half. Then, we expected a stronger second half because of all the appliance launches. And still, it doesn't materialize. I mean, revenue growth on a total revenue basis, the revenue growth is flat at about 3%, 3%, 3.5%. And if I take a longer-term view, the revenue growth decelerated from a high level in Q1 of 2010 of 25%, down to 3%. So clearly, something is decelerating outside of just the environment. And the question is, if I go to this year, if I look to this year, you had lots of new products that created a refresh cycle. Is it safe to assume that outside of these refreshes, the growth is actually negative? I mean, how do I reconcile your expectations for a strong year versus 3 quarters of slow growth and a period of refreshes? So I know it's kind of a difficult question to answer but I just want to understand the refresh versus underlying demand for the product.

I think we are doing very, very well. Like you, I would like to see higher growth rates, so I agree with that. I think we are growing in line or slightly better than our industry. That's all the statistics that we are checking shows. And yes, we do have a lot of new technologies, and I think it's good, and I think it drives customers for refreshes. We do get a lot of new customers. We get thousands of new customers every year. And still, I would concur with some of the things you've said. We'd like to see higher, faster growth rates and part of it depends on the macro economy, part of it depends on our industry, and part of it depends on our own execution. But overall, I'm very happy with what we've done. I think we have been able to maintain growth rates that's higher than the industry, that's consistent for almost 20 years. And I hope that it will remain that way in the next 5 years, the next 10 years, that we'll be able to show growth that's same or higher than our industry and continue to show the leadership. Tal Liani - BofA Merrill Lynch, Research Division: And Gil, you talked about share gains. And how does the -- Juniper is still losing shares, Cisco and their core business is still losing share. How do you take advantage of these opportunities? And you've seen Cisco making acquisitions. So what do you have to do on your side to address the opportunities but also the risks of Cisco getting to the market with refresh solutions now?

Well, our market is competitive and has been competitive. I don't want to review our competitive strategies for every vendor and for every move. I don't think it works into our advantage. But I think some of the moves in the marketplace are clearly showing that some of our larger competitors are seeing the action of what we're doing and so are some of our smaller competitors are seeing the risk of the success of some of our new technologies and some of our new innovation.

Our next question today is coming from Brent Thill from UBS. Brent Thill - UBS Investment Bank, Research Division: Gil, just on the service provider market, I'm curious if you could give us an update in terms of what you've seen over the last year and are you seeing any signs of health returning in that segment?

Can you repeat which segment? Brent Thill - UBS Investment Bank, Research Division: The service provider market.

It varies by different areas of the world, actually. So I mean, we've seen some parts of the world that we've been very successful, and there have been a lot of investment in the service provider. In other areas, it wasn't exactly the case. The interest level is still high in the service provider market but again, the results vary by different segments. If you look at, for example, our 61000 series, this quarter, we had our first sale to the telco market, which took longer than what we expected but we actually saw a lot of upside with the 61000 in the commercial side, in different vertical end of the marketplace. But for telco, we made the first major sale of the 61000 to a telco this quarter and we are very pleased with that. Brent Thill - UBS Investment Bank, Research Division: Okay. And as quick follow-up, every one security's trying to figure out a mobility platform to address, obviously, the emergence of all these devices. Can you just give a sense of where you think customers are in getting this problem under control and where you sit on that?

It's a sophisticated problem and it's a challenging area. We have some very nice offerings in the mobility space. Some of them are released; most of them are not released yet even though we are working -- I'm working with it for quite a long time. And you can see that we are, for example, the first and we're the only vendor to provide the VPN for the iOS service that was released last month. So I mean, we are very, very active with that, in connecting mobile devices to the rest of the enterprise network. There will be some more new innovation that we'll bring on the mobile device space and the different smartphones that are operating, and I think it will be a refreshing and nice area that we'll show later next year.

We have reached end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you, everybody, for joining us today. If you have any questions, make sure you reach out to us. If not, we'll see you during the coming quarter and in January for the end-of-year results. Thanks, and have a great day. Bye-bye.

Thank you very much.

Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation.