Kip Meintzer - Head, Global Investor Relations Gil Shwed - Founder and CEO Tal Payne - Chief Financial Officer and COO

Gregg Moskowitz - Cowen & Company Brad Zelnick - Jefferies Shaul Eyal - Oppenheimer Philip Winslow - Credit Suisse Saket Kalia - Barclays Matt Hedberg - RBC Capital Markets Gur Talpaz - Stifel Michael Turits - Raymond James Alban Cousin - Arete Rob Owens - Pacific Crest Gray Powell - Wells Fargo Walter Pritchard - Citi Sterling Auty - JPMorgan Robert Breza - Wunderlich Securities Scott Zeller - Needham & Company Brent Thill - UBS

Greetings. And welcome to the Check Point Software Technologies Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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 Meintzer, Head of Global Investor Relations for Check Point Software Technologies. Please go ahead, sir.

Thank you, Kevin. I’d like to thank all of you for joining us today to discuss Check Point’s 2015 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 being webcast live on our website and is being 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 29th. 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 this presentation, Check Point representatives may make certain forward-looking statements. These certain 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, include, but are not limited to, statements related to Check Point’s expectations regarding business, financial performance, customers and products, including its expectations for product introductions, enhancements and the integration of recently acquired companies and technologies, the success and broad availability of the products and technologies acquired and the future expenses related to these recent acquisitions. Our expectations regarding the introduction of new products and programs, our expectations that will continue to focus on threat prevention and mobility spaces, our expectations regarding demand for cyber security and other products and solutions, our expectations regarding expanded investments, including hiring across the organization and our expectation regarding our business and financial outlook, including our guidance for Q3 2015. Because these statements pertain to future events, they are subject to various risks and uncertainties. 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 press release issued on July 22, 2015, which is available on our website and other factors and risks including those discussed in Check Point’s annual report on Form 20-F for the year ended December 31, 2014, which is on file with the Securities and Exchange Commission. Check Point assumes no obligation to update information concerning these expectations or believes 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, I’d like to turn the call over to Tal Payne for a review of the financial results.

Thank you, Kip. Good morning and good afternoon to everyone joining us on the call today. I’m very pleased to begin the review of this great quarter. Revenues for the second quarter increased by 9% year-over-year while non-GAAP EPS grew 11% to $0.99 coming in at the top of our guidance. Before I proceed further into the numbers, just let me remind you that our 2015 second quarter GAAP financial results include stock-based compensation charges, amortization of acquired intangible assets, and acquisition-related expenses 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 second quarter of 205, our revenues reached $395 million, an increase of 9% compared to the same quarter last year. Total revenues from products and software blades grew by 11% year-over-year. We have success in many areas, mainly in Security Management products, Small Business Appliances, as well as Data Center and Super High-End Appliances. We continued to experience great success in our software blades, which grew by 20% and now represents 19% of our total revenue. This growth was across all software blades with nice penetration of our newly introduced Prevention and Threat Extraction software blades packaging. Our software updates and maintenance revenues reached $186 million, representing 7% growth year-over-year. Deferred revenues as of June 30, 2015 were strong at $780 million, an increase of $120 million or 18% over June 30, 2014. The revenue growth was across all our regions during the quarter. Revenue distribution by geography for the quarter was as follows. The Americas contributed 48% of revenues, Europe contributed 37%, and Asia Pacific, Japan, Middle East and Africa region contributed the remaining 16%. From deal size perspective, we continue to see strength in our large deals. The number of customers with transactions over $1 million increased by 17% to 63 customers this quarter compared to 64 in the same period last year. Transactions greater than $60,000 accounted for 72% of total order value, same as in the second quarter of 2014. Our non-GAAP operating income for the second quarter of 2015 was strong at $221 million, an increase of 7% compared to the second quarter of 2014. During the quarter, we continued to execute on our enhanced recruiting, mainly in sales and R&D team and we plan to continue to grow our headcount in those departments. In addition, recently we acquired two companies, Hyperwise last quarter and Lacoon, immediately at the beginning of the current quarter. The effect of the increased costs from the enhanced recruiting and the acquisition has ramped up in the second quarter and expected to continue to ramp up throughout the year as we discussed previously. GAAP net income for the second quarter of 2015 was $163 million, or $0.88 per diluted share, an increase of 6% from the second quarter of 2014. Non-GAAP net income for the quarter was $183 million, or $0.99 per diluted share, up from $172 million or $0.89 per diluted share in the same period a year ago. Non-GAAP earning per share grew by 11% and exceeded our guidance. Our cash from operations continued to be very strong and increased this quarter to $193 million, an increase of 15% compared to $168 million in the second quarter of last year. We continued implementing our expanded share buyback program during the quarter and repurchased approximately 2.9 million shares for a total cost of $245 million. Our cash balances reached $3,611 million at the end of the quarter. Now, let’s turn the call over to Gil for his thoughts on the second quarter.

Thank you, Tal, and good morning to all of you joining us on the call today. In the second quarter, we continued to execute on our plans for the year and delivered solid results. We continued to focus on the Threat Prevention and mobility spaces, two essential areas for the future of cyber security. On Threat Prevention front, we made a lot of progress this year. We introduced two new technologies, the CPU-Level Threat Emulation and the Threat Extraction. These two technologies are unique in the marketplace and demonstrate how we leverage innovation in our product. The CPU-Level Threat Emulation is designed to improve zero-day malware detection rate and it catches key exploit techniques utilized by hacker in its infancy. Before the malware has the chance to hide the threat or cause any damage, CPU-Level Threat Prevention is one of the most advanced techniques we know today to catch APTs. The Threat Extraction software blade detects the same problem from very different angles. Instead of relying on techniques, the delay filed delivery don’t always deliver 100% catch rates, we do something very different. Reconstruction of the file which works very quickly and in our experience provides a 100% remediation rates. Leveraging these two technologies together, we are able to provide superior intelligence and preventions. One key differentiation in our product is the fact that by default, we’ve blocked the zero-day malware on the first spots. Most other solution in the marketplace today, allow the malware into the organization, only later provide notification. During that time, the malware can infect the organization and as we stated are left with information without always being able to remedy the situation. Our solution are designed to stop the infected file before they reach the network and prevent any damage. But let me spend the last few minutes just to educate you about our technology. In this quarter, we saw significant progress in the sale results and pipeline of our Threat Prevention solution. We’ve entered the large number of customers who are using the technology and I believe that we are on the right track to have customers consolidate zero-day malware prevention with our platform. On the mobility front, we’ve made an important move this quarter by expanding our mobile security platform with the acquisition of Lacoon Mobile Security. Lacoon developed the best, one of the very few Threat Prevention solutions for mobile environment. We are seeing a healthy interest in this product and we are able to demonstrate outstanding protection. Last quarter, we were able to block major zero-day attacks on customers who had already implemented this technology. In addition, our research team has found major vulnerabilities in key mobile operating systems. Our current product is available for a limited amount of customers and we are in the process of integrating it into our environment and making it available for the broader marketplace in the next couple of quarters. We’ve also expanded our footprint in several strategic areas of the market, in the private cloud space with the introduction of vSEC solution for the software-defined datacenter with VMWare, in the critical infrastructure space with the introduction of our ruggedized 1200R appliance that is especially designed for extreme environmental condition and handling of the SCADA protocol. As for the marketplace, we’ve seen credit demand for cyber security products and advanced technologies in a very competitive marketplace. On the sales side, we significantly grew our worldwide sales team this year. We’ve added the headcount in all regions and in key areas, such as threat prevention and mobility. Early signs of increased personnel are quite positive. Our pipeline for new dealers increased significantly, but it will take several quarters before we can see how much of its pipeline converting today. Overall, I am pleased with our progress this year. We are headed in the right direction with the investments we’re making. I would like to see results earlier, but naturally these things take time. These bring me to the financial outlook. So always it is hard to predict the future and there are many factors that can lead to outperformance or underperformance that must be taken into consideration. For the third quarter, we expect revenues in the range of $392 million to $410 million and non-GAAP EPS in the range of $0.92 to $1.02 per share. GAAP EPS is expected to be approximately $0.12 less. This includes the effect of the recent acquisitions. With that, I would 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 Gregg Moskowitz from Cowen & Company. Please proceed with your question.

Okay. Thank you very much. First question is just for Gil. Given the typical sales productivity ramp that exists in software, it would seem too early to see a benefit from your increased sales and marketing investments. And I think you effectively just alluded to as much. So the question really is, what do you think grows the strength in the business this quarter because it’s clearly these results across the broad product revenue bookings etcetera were north of what investors were looking for?

I think what we saw this quarter is there and that’s real progress of the business. We’ve started seeing some signs of increased headcount. It’s again too early to say how big will be the effect, but we’re seeing as I said increased pipeline. We are seeing more opportunities. Again, at this point, it’s way too early to say when will and when and how much of these opportunities will turn into the actual sales. And I believe we will see it’s a little bit of flat in Q4 and more of that next year.

I would just add that specifically this quarter, Gil, related to that, we’ve seen the packages that include threat extraction and threat emulation picking up. And there was a quite a nice and strong growth in that area, which is part of our -- to enhance focus area, the threat prevention in general, and you need the threat emulation and the mobility, which will take time to start into.

Okay. And you also mentioned that the super high end appliances did well this quarter. Was more of that strength with service providers or whether with enterprises as well?

I think both, a lot of enterprises, but I think also a little bit of service providers.

Okay. And then just one last one if I could. At this point, Gil, how does the pace of sales, marketing, and R&D hiring? Gow does that compare to what your expectations were heading into the year? And then also just where are you primarily getting the talent from?

Actually we are on target in all the hiring, which is a very good sign, because we took very aggressive goals and eventually we will be able to meet. But I think in general, we are at the headcount, some departments are slightly ahead, some departments are slightly less, but the total number of employees is good. We are getting the people from all over. I mean, if it’s R&D, then we are talking about a lot of new graduates. But also this year, we are taking a lot more experienced seasoned software developers, more than in previous years. Actually now with the end of the school year and the universities, in the summertime we will probably add more bigger recruit, full of new developers. In the field itself, the people are coming from all over, some are coming from other companies, some are coming from enterprise software companies, some are coming from competitors and it’s a very broad set of people that we bring.

Great. Thank you.

Thank you. Our next question today is coming from Brad Zelnick of Jefferies. Please proceed with your question.

Thank you. Gil, last we’ve heard the R80 released your platform is still expected sometime in the back half of this year. Can you talk about the extent to which R80 can be a catalyst for adoption and specifically, what’s so exciting about it? And how it compares to other major releases and the impact they have on your business?

Yeah. I don’t know what specific impact R80 will have, but it’s a very significant release. I think it’s completely takes our manager -- security management part into the next generation, if you ask customers and they will tell you that our security management is the cornerstone of our product. That’s a very important element for them. That’s actually the only way that the large customers can manage very large states and the complicated policies and with the next-generation of management we’re making it much, much easier. We create new layers of management. We create better way to simplify these policies. These are becoming much, much faster operator -- operations that now the operator has to wait for, will work instantly as you press the button. So that’s one of the reasons customers are very excited about it. And I think some of that will also come on the gateway side and making things more integrated on the gateways opening and optimizing a lot of things for the new technologies that we’re bringing to the marketplace, even though most new blades, which we’re speaking about right now are also available on our 77, the existing release which we are shipping in the marketplace. So I think that’s a very exciting thing for customers. From the management standpoint actually the nice surprise this quarter that we saw a huge increase in sales of security management already this quarter. I don’t know with some of that is in anticipation of the new software, because customers that get that can will also be able in the future to get some of the updates. But I think, overall, I think that, I think, it’s a good thing in general to the marketplace.

We appreciate…

And it’s a very, very important differentiator when you go -- when you look at the rest of the marketplace.

We appreciate the color. If I can just ask a follow-up, Gil. There is concern out there that the large network equipment providers are getting more competitive in security or at least trying to. How is the competitive environment changing especially with Cisco and Juniper?

And I think we are in a very good standing relations start to some of these large networking providers. And many of our competitive wins and a lot of our customers we convert are coming from previous installation, old installation of the large networking providers. And I mean, as I said, we are seeing a very healthy competition in the marketplace, but I think, we are winning quite nicely against the large networking providers.

Thanks for taking my questions.

Thank you. Our next question today is coming from Shaul Eyal from Oppenheimer. Please proceed with your question.

Hi. Good afternoon, guys. Congrats on the good quarter. Tal, any change in the ranking order of the best selling blades, I am not sure, [indiscernible] just thinking as consequences you mentioned the software integration blades? So any color for next quarter?

You have a bad line, so I will just answer the question that I heard. Your question is, is there any change in the order of the top five blades or the top blades? The answer if that was the question…

That was the question.

The answer is…

Got it. That is the question.

Great. Okay. So that continues to be number one and you have application control follow this and the regular suspects, you know the antivirus, the [indiscernible] I said Anti-Bot became number five and I can tell you that Threat Emulation is very closely high.

Got it. Thank you for that. And then a quick one in respect to the channels and any change in recent quarters since FishNet and Accuvant for the [indiscernible]

Can you repeat the question?

Any change with respect to the channels in the merger of FishNet and Accuvant last year?

FishNet and Accuvant, yeah, we work with them a lot. They are very good partner of ours like many other partners. I don’t see any material change. We work with both sides of the house and we have consolidated organizational, obviously, between quarters there can be different ups and downs, different deals going through different partners, actually they are here today with many other partners. We have our President Club Event here today and they are part of the group that showed up here to be part and to continue to grow the business with us.

Thank you very much. Good luck.

Thank you. Our next question today is coming from Philip Winslow from Credit Suisse. Please proceed with your question.

Hi. Thanks, guys and good afternoon, everybody. Great quarter particularly in area of deferred revenue. I mean, obviously, you guys continuously help your attach your blades, but also continue gets product growth in appliances and in the software. One of you can just comment on the price environment that you are seeing out there both -- on the core firewall, but also the blades? Any sort of change in the price environment whether it would be not in those two components or the high-end and low-end markets? Thanks.

So I would say in general every quarter it’s just slightly more and slightly less discounts depends on the specific. Most of the pressure typically comes also from the currencies. Remember that the euro dropped versus last year or got weakened against the dollar about 24% comparing to last year. That put more pressure on customer’s budgets in Europe. You see some of this in Asia as well look at Australia, there was 20% decrease in the currency. So I think the results are quite well taking into account the reduction of the budgets of customer. Bear in mind our prices is in dollars which mean the way we can help our customers is to help them with when if necessary with a discount.

Got it. And then just one follow with that, one point last year you talked about the Home Office, Branch Office market that you called just lower ASP appliances, it was early last year. Any sort of updates there on the trends that you are seeing?

Yeah. We are seeing actually, naturally small appliances. We are seeing very healthy growth in them. Unfortunately there are still very small portion of the sales. So the impact is not biggest, but it’s heading in the right direction and I think there is a lot more investment we can do in that area to grow. But business was at the beginning of the year started to having more dedicated sales force for the small offices and I think it’s started to bear fruit, it will still take time.

Great. Thanks guys. Congrats again.

Thank you. Our next question today is coming from Saket Kalia from Barclays. Please proceeds with your question.

Hi, guys. Thanks for taking my questions here. First one for, Tal, I may have missed it, but do you have any comment whether this quarter’s results changes your outlook for the year in anyway?

No. We are still pleased to say wait for announcement, well, for the rest of the year, right.

Got it. Got it. And then, and the follow-up is, Tal, can you just maybe remind us, what sort of revenue model Lacoon and Hyperwise had in terms of upfront versus recurring revenue and how much you estimate they added to billing this quarter.

The simple answer is that zero to very, very, very low numbers, the answer is zero, therefore no effect, if anything, the added expenses which we call investments and hopefully we will start to see results as part of on the Threat Emulation deal, talk it about at the CPU level technology, which we believe is will be significant part of the Threat Emulation growth in the future, therefore we investing in it and we integrated it into operating relation and so on. On the mobility it’s probably a few more months and it will be integrated it all separately. There is a lot of interest in the market, but it will take time, but in general I would say we got the revenue less companies.

So let’s be little bit more clear, in Hyperwise there weren’t any revenue at all, in Lacoon there were several large customers and a little bit of revenues. But again it’s still in significant. With Hyperwise we are integrating it into our existing offering and I am not sure which we will be able to measure the exact impact of our technology, with Lacoon it will be a different product line and we will be able to see the specific contribution that it will have soon to our revenues.

I will treat it as a start in technology.

Got it. Very helpful guys. Thanks very much.

Thank you. Our next question is coming from Matt Hedberg from RBC Capital Markets. Please proceed with your question.

Sure. Thanks. Gil, I want to talk about the customer desire to consolidate network span. And certainly I think you mentioned in the past R80 should help with that. But I’m wondering how pressing of a need right now is customer consolidation? Are we still in land grab for just organic security spend?

I think the need to consolidate to consolidate security vendor use is very high. I think the customers are aware of us, but I’m not sure it’s real behavior is actually showing that. I mean, you see that -- it really varied by the type of customers. You see with the large customer, they are concerned about multiple vendors. They are investing a lot and working with different vendors but the current way they operate is the one that we still purchase from article vendors. And I think one of the biggest opportunities we still have ahead of us is to consolidate. We’ve done it successfully in some areas in the past in IPS for example. We are doing it now. We’ve threat prevention and threat extraction but it will still take couple of more years to see how successful we’ll be with cycle to consolidate this technology and work with less vendors on that.

That’s great and maybe just one quick follow-up. You mentioned VMWare. VMWare mentioned you guys last night on their call as well. And I’m curious when you think about hybrid cloud architecture. How should identity in access management fit into your strategy? I think I’ve asked it in the past and I’m a bit curious if you have any updated thoughts on that?

I think we do connect very well to a different identity and the directory system and work with them. But we don’t provide today specific product in the identity and access management. And I think it remains a complimentary field in our market space.

Great. Thanks.

Thank you. Our next question today is coming from Gur Talpaz from Stifel. Please proceed with your question.

Thank you. I think you stand a bit on the FireEye partnership. How customers reacted thus far to the announcement? And have you seen any sort of initial impact to it, the blade sales, as it is sort of seen as net positive for the both companies. And then going one step further, how should we think about future partnerships in sharing right data across the spirited vendors? Thank you.

I think the overall cooperation in sharing the correct data is important for customers and that’s the main reason we’re doing that. We are getting positive feedback to the partnership with FireEye and probably one of the several or many partnerships that we have in that space. Example, if you look at our IntelliStore, that’s another one but they involve -- that involves several other partners in the field of a security intelligent. But we are still working on the integration. So feel too early to say when will we see some more results. I think it overall will be positive because I think we do have some large customers that would like to have that intelligence and that means that which partnership is right and to buy more of Threat Emulation blades.

Great. And then Tal one question for you. Blade revenue got to sort of stabilized at about 20% year-on-year for the past several quarters. Is that the right baseline number to think about for our blade revenue growth going forward because it fluctuates the positive to negative? How should I think about that number and the mechanics around it sort of in future period? Thank you.

I think if you look at the last three years and as I said actually many times you should expect the number over time to go down as the topline number becoming very big. Right now it’s 19% of our revenue. It’s grown to 20%. If you look two years ago, we were 50% and then drop to 30%. So by the nature of thing, it’s slowing down overtime. The thing that slows the reduction is the fact that we continue to penetrate into new customers and we introduce new technologies. So Threat Emulation just is an example, whether it is blade or it’s a cloud service and its part of this subscription line then it can help to slow that growth down. So it’s part of our guidance. We took that obviously into account.

Great. Thank you.

Thank you. Our next question today is coming from Michael Turits from Raymond James. Please proceed with your question.

Hey guys. Good morning. Couple of question, first on EPS speed and you did have a margin upside. It looks like you’re a little less spending again in sales and marketing and R&D. Is that a portion of deferral or push out of spending or did that have to do with FX?

Well, I think it’s mainly the FX. Remember that we still have plans for recruiting for the rest of the year for Q3 and for Q4 or so. I would say I would expect to continue to see in Q3 a reduction in the growth in the operating margin.

Just to clarify, I think we’ve hired enough people so we are set for the right expense level, not on the peoples that we hired in Q1 or Q2, as the full expense in the second quarter.

Okay. And then turning the spot to Phil’s question, it’s actually on pricing and you mentioned that obviously you are priced in dollars, so you discount where necessary to help out customers. So what’s the trend there? Have you increased those discounts given that demand impact of the richer dollar and how does it look going forward?

Yes, slight increase in the discounts.

Okay. Thanks.

Thank you. Our next question today is coming from Alban Cousin from Arete. Please proceed with your question.

Hi. Thanks for taking my question. One quick one on long-term deferred revenue, which increased, I think to 19% of total deferred. I was wondering whether that’s a longer term trend. We will see longer term -- long-term deferred revenue higher proportion of your deferred revenue going forward, or if that’s just the effect of two or three quarters?

I think it’s really up to the customers. Sometimes they have more budget and they would like to have the deal for a few years. Sometimes it’s related to -- obviously, many of them just show loyalty and they tried to stay with us for many years, so the time for a few years. It’s more depends on them than on us really.

Okay. And if they choose to go longer term, how should we think about the change to -- what does it change to your operating margin or to the business model?

Not much effect on that.

If it affects anything, it’s really the cash flow, right because you collect many times the cash flow of the full contract. In terms of the P&L, there is no effect.

All right. Thank you.

Thank you. Our next question today is coming from Rob Owens from Pacific Crest. Please proceed with your question.

Great. Thank you. A question around Lacoon Mobile. I’m just looking for more color in terms of how you view it fitting in your portfolio, and is this starting to foreshadow maybe increased investment around a broader endpoint play for you guys and could you roll Hyperwise into something like that? Thanks.

We do have nice investment in the entire endpoint space and we do have research into the future, into future endpoint platform and next-generation endpoint play. I’m not sure how big portion it will take in our business. Right now, I’m not modeling it into our business. I think that the big portion of the next-generation endpoint is actually the mobility space and that’s where I’m focused on right now and think that under invested space and tech security and that’s a huge, huge risk today, when you think about the fact that all these mobile devices are everywhere. When you see everything we do, we listen to everything. We run -- our business data run through them and they are submitting and connecting to the network all the time and not necessarily through the corporate security measures that are around there. So my focus today in terms of product and market potential is in the mobility. In terms of research, we have some very interesting innovation also on the endpoint right now. And yes, Hyperwise can play some role into that in the future.

Great. Thank you.

Thanks. Our next question today is coming from Gray Powell from Wells Fargo. Please proceed with your question.

Great. Thanks for the questions. Maybe just to start, what kind of impact the bookings growth do you hope that your incremental sales and marketing investments will have? And then just trying to think through different scenarios, if growth were to stay at, call it the current 10% annual pace, would that be something that would cause you to spin more on sales and marketing or pullback the spending, or maintain your current base of spending? Thanks.

I think this year we’ve started accelerated planning investments in sales and marketing. I think based on the results of that, we will decide how to invest further, I may. Obviously, I’m shooting for better results in the future and I think our pipeline today shows that there is definitely a potential in that. I think we will still take time to see how much can we see results and productivity increase or decrease from these investments. And I’m fairly optimistic at this point, but it will still take us several more quarters to see the financial model, how it works. So, hopefully, we will have better answer within two or three quarters.

Okay. And then just one more if I may. In the past, you highlighted that your most mature Blade, the IPS Blade penetration, is at about 30%. Is there any reason that number got to move to something materially higher, like the 60% or 70% range? Are you just trying to think about that longer-term?

I think it is approaching that number. I don’t think 70%, but I do believe we need to check the number, but I do believe we did past the 50%.

Yes. It should be higher and we will check exactly the number, but I think it’s a north, way north of 50%.

Okay. Thank you very much.

Thank you. Our next question today is coming from Walter Pritchard from Citi. Please proceed with your question.

Hi, thanks. We noted you signed the VMWare partnership in the last week or so. Could you talk about where you see the opportunity there? When your competitors will see some success integrating with intersects product doing network segmentation? I am wondering if it’s an area that you will focus on as well, or if you think that the partnership will go into different direction.

That’s a very high potential area. I mean, we are hearing from the marketplace and we are hearing from VMWare that there is a lot of potential there in the datacenter. I think the feedback that we’re suggesting is that our solution is much better than already that are available today in the marketplace. And I think that explains the motivation on both sides of deal and especially on the customer side. Doing that we have better security, much better automation which is one of the key elements that we have better ability for alleviation or containment of issues that are in the or in the datacenter. So I think overall, we are getting a very good feedback on that and that’s what would drive that and will drive our partners in that space to invest and to mature it. And again, we are relatively -- when we already had a lot of solutions individual datacenters and so on, we intersect specifically or relatively new, so it’s too early for me to say what’s the potential, but we get a lot of good buys around that and a lot of nice signs from that direction.

I think Gil around firewall refresh, there is sort of an ongoing debate there. And I am wondering if you could help us understand if you’re seeing any pickup or slowdown in your installed base at the pace at which they refresh versus where it was six months ago?

I don’t see much change. I mean, I see -- we see all the time some customers that are refresh, some customers that are I think new project, the new datacenter. Once in a while we have some mega deal of the customer that does a big refresh that’s very hard to point. But most of our deals are sort of expansion ongoing deals and some refresh of all the infrastructure.

I would add completely agree. I would add we have some players are smaller, therefore they don’t have a bigger picture of the market. When we look at our large installed base, we see the same -- pretty much the same phenomena for the last few years, same range than we see in terms of refresh. I know that some reports out there that talk about a huge refresh last year, therefore a low refresh this year, we don’t see it at all. We pretty much see the same trends. Therefore, we see the same trends in our numbers. Our numbers are getting stronger as a result of the new initiatives that we did, expansion, new projects that we see with customers. New customers and threat relation is starting to pick up, and therefore we see the increase in our numbers. But the total refresh, we don’t see material change, we didn’t see it last year or this year, we do see new nice new projects.

Great. Thank you.

Thank you. Our next question today is coming from Sterling Auty from JPMorgan. Please proceed with your question.

Yes, thanks. Hi, guys. I wondered if you could give us the -- what is the sales and marketing headcount at the end of the quarter versus the end of last year or the end of last year just so we can get a sense of the magnitude of investment that you made?

I actually don’t have it in front of me. We don’t even provide it quarterly. But I can tell you that just at the beginning of the year, we increased our headcount significantly and hundreds of people. Many of them in sales and marketing actually, and the growth in Q2 was higher than in Q1. We didn’t see many of it in the expense because we assume that it’s a -- the recruiting came in way below each quarter, therefore each quarter you are missing about half of the expense of the recruiting that you had in that specific order. That was relating to Q3. When you talk about R&D, unlike sales, R&D is spread throughout the year. Many of the recruiting of the R&D coming actually in Q3, when we are waiting for the graduate to finish university, so we’ll have a lot of the R&D recruiting in Q3 hopefully and the increase you can see in the P&L. You can see the increase in R&D. By the way, you didn’t see an increase because the shekel exchange rate reduced the effect or offset the effect but we actually had a nice increase there as well. In sales and marketing, in the U.S., the dollars are the same dollars, they are headcount. But in Europe, again, you have the help of the euro. We didn’t allow you to see the full effect. We hope the currencies will stay that way. Remember, if the currency will change the direction, it will increase our expenses to the other way.

So those that are actually going into sales and marketing, what’s the focus, is it on lead generation? Is it trying to bring on more resellers? Is it reducing the number of resellers per channel manager to drive deeper penetration? Just where is the focus of where those new hires are headed?

Across the board, we have the new units to promote the new focus product. We have new structure to handle the channels. We have more account managers and actually even reduce the number of accounts per channel managers, so they can better focus on each account. And there are people, which should bring new account and so on. So, we have the focus all over that. We have specialist on the emerging technologies, so it’s across the board.

And just a last quick one, any color geographically? It look like Europe had an uptick in terms of growth or maybe the Americas cooled off a little bit, any sense of any trends that we are seeing in the major theaters?

I’m not sure I heard you. I can tell you that all the regions did well. All of them were in the high single-digits. I think actually, in the revenue armor, was maybe on the 10% right. By the way, there was a re-class that we did already from the beginning of the year in the comparable of the revenues. You already have it on regions. You have it in our website already for the last two quarters. But I’m telling you, the numbers after the re-class from the beginning of the year were pretty strong for all of them and revenues for all of them was in high single-digits.

Thank you.

Thank you. Our next question today is coming from Robert Breza from Wunderlich Securities. Please proceed with your question.

Hi. Thanks. Gil, maybe just a quick question on the 1200R security gateway appliance. When you look at that, coming out with that new product, how big can that market be and how long do you think it will be before you become a critical player in that space? Thanks.

Yeah. I think we can become an important player in that space fairly quickly, but the challenges that we face today is very small. The potential is very high. If you look at every power transmission station that we have in the street, they met every utility company, the manufacturing flows and so on. There is a lot of infrastructure today that chooses very, very old computers that they have not updated, that are very exposed that we can’t connect it to the network and needs to be secured. The main challenge with that product is that, while the risk to the infrastructure is very high and the need to secure them is critical, we are talking about organizations that and especially that the production side of that, but are not very innovative in terms of their IT infrastructure. So it takes them a lot of time to implement the technology, but the growth of that product because of the market needs. We had some several large projects that we’ve already won and installed that needs better kinds of controls.

Thanks. Nice quarter.

Thank you. Our next question today is coming from Scott Zeller from Needham & Company. Please proceed with your question.

Yes. I think there was an earlier question around endpoint and thank you for your comments but just a more direct question. Have you noticed a change at all in the ability to get endpoint projects actually funded? We understand there is a lot of interest and discussion around endpoint security, but have you seen a change at all in the ability to get funding for those projects?

Our focus for the last two or three quarters was actually on focusing on the mobility. So, we do have some nice deals that are continuing on the endpoint side. And I think that we build some interesting capabilities that we may decide to bring to the market in the future. But for the last several quarters, our main focus was on the mobility side of things.

Okay. Thank you.

Thank you. Our next question today is coming from Brent Thill from UBS. Please proceed with your question.

Thanks. Tal, Just on the blade strategy, you’ve done very well. I’m curious, if you’re finding new [halogen] [ph] in placing the methodologies that are resonating as you learn more. We’ve seen a lot more bundling from other competitors. I’m curious if you’re seeing the same trend?

I think we started bundling methodology in a smart way in 2009. If you recall back then the software blade then what was maybe the base of software blade was a low tens of millions. And now we’re reaching to a run rate of over $300 million. So it is quite significant now in our business. The way that we do it is mainly packaging like you say. As we package more blades, sometimes the pricing go up and therefore it allows you to give them -- to reduce the customers more security, more capability while increasing our total offering and total therefore value that we get out of that transaction. For the customers, if they refresh or maybe we can replace other solutions and consolidating to our platform, that can be a significant cost reduction for them as well as for us. It’s an increase in our ASP per unit or per customer which is a churn we’d been seeing in last two years. And it’s working very well for us and it looks like it’s working very well for our customers.

And just a quick follow-up on a long-term deferred revenue. Was there a strong -- are you seeing any change in customer contract duration that they are initially signing with you?

You can see the short term increased very significantly as well. Short term was a 12% growth year-over-year. And if sequentially, we typically see minus 1%, minus 2%, we actually sell zero. So we had quite a strong deferred revenue in general. In the long term, I would say we see some -- depends which quarter and the last few quarters, you’ve rightly seen more customers signing longer term contract. Typically, say strategic customers that know they are going to be with us for long time and many times they are refreshing -- they are holding install base. And they are having a whole deal for the next few years.

Thank you.

Thank you. That concludes our question-and-answer session. I’d like to turn the call back over to management for any further or closing comment.

Just one thing before we close out, I just want to reiterate the guidance just we have it clear. For the third quarter, we expect revenues in the range of $392 million to $410 million, non-GAAP EPS of $0.92 to $1.02 per share and GAAP EPS is expected to be approximately $0.12 less. With that, thank you all for joining us today. And we look forward to seeing you during the quarter. Thank you.

Thank you.

Thank you.

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