Greetings, and welcome to the Check Point Software Technologies Second Quarter 2016 Financial Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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. Thank you, Mr. Meintzer. You may begin.

Thank you, Doug. I'd like to thank all of you for joining us today to discuss Check Point's 2016 Second Quarter Financial Results. Joining me today on the call are Gil Shwed, Founder and CEO; along with our CFO and COO, Tal Payne. As a reminder, this call is webcast live on our website and is recorded for replay. To access the live webcast and replay information, please visit the company's website at checkpoint.com. For your convenience, the conference call replay will be available through August 2. 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's representatives may make certain forward-looking statements. These forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities 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 and enhancements; our expectations regarding the introduction of new products, and programs and the success of those products and programs, our expectations regarding the impact of accounting rules applicable to our bundled solutions, our expectations regarding demand for our solutions, our expectations regarding pricing and discounting, our expectations regarding financial income from investments in Q3 and our expectations regarding our business and financial outlook, including our guidance for Q3 2016. 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 26, 2016, 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, 2015, which is on file with the Securities and Exchange Commission. Check Point assumes no obligation to update information concerning its expectations or beliefs, except as required by law. In our press release, which has been posted on our website, we present GAAP and non-GAAP results along with a reconciliation of such results as well as the reasons for our presentation of non-GAAP information. Now I would like to turn the call over to Tal Payne for a review of our financial results.

Thank you, Kip. Good morning and good afternoon to everyone joining us on the call today. I'm pleased to begin the review of the second quarter. Revenues for the quarter increased by 7% year-over-year while non-GAAP EPS grew 10% to $1.09, at the top of our guidance. Before I proceed further into the numbers, let me remind you that our 2016 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. Our revenues reached $423 million, an increase of 7% compared to the second quarter of 2015. Product and software blade revenues increased this quarter in 10% over the same quarter last year, reaching $229 million. This quarter we completed the launch of our new appliance family with the introduction of the small to mid-size appliances. The market adoption was strong, and we see very good transition of over 50% of our new appliances are sold from the new family. Number of core gateways sold increased in double-digit, both in units and in dollar value. As we discussed in the previous call, the new appliances are bundled with a richer software blade package. Naturally the new package carries a higher value. According to accounting rules, the value of the software blade is separated from the appliance price, deferred and recognized over the service period. The increase in the value of the bundled software blade was about $8 million this quarter. This amount shifted from product revenues to our deferred revenues and recognized over 12 months. The net effect on revenues this quarter was approximately $6 million. Annually, we expect net revenue in the amount of…

Thank you, Tal, and good morning, to all of you joining us on the call today. We had a very active first half of the year and completed the second quarter with healthy financial results. During the first six months of 2016, we refreshed our core product line and launched our new series of appliances designed to provide advanced threat prevention capabilities to customers of all sizes. The new appliances include the 1400 Series and the 3000 Series for small and branch offices, the 5000 Series for mid-size enterprise, the 15000 Series for the enterprise, and the 23000 Series for the high-end and data center. During the quarter, the number of appliances sold increased by double-digits with the majority of growth in units coming from the new lines. It appears customers are very happy with the latest appliances, and we the transition moving faster than we expected. Over 50% of the appliances sold during the quarter came from the new families. We also continued to extend our industry leadership with the launch of R80, our latest security management platform enabling customers to manage the most sophisticated security environments while providing them the ability to consolidate many security functions and operation into a unified and scalable management platform. To quote one of our new customers, "Check Point R80 is fantastic. Its innovation are a great leap forward because they show us what's actually going on in the environment through that single pane of glass." Our main focus this year continues to be at the two forefronts of cyber security, preventing zero-day attacks with our SandBlast technology's features and mobility where we have one of the only products to address the challenge. In both of the above areas, we've made significant progress in the second quarter. We launched our first software-as-a-service security…

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. Our first question comes from the line of Gregg Moskowitz with Cowen & Company. Please proceed with your question. Gregg Moskowitz - Cowen & Co. LLC: Okay. Thank you very much. Good afternoon, Gil and Tal. Thanks for the color as well, by the way, with respect to the impact from the new appliance family. That's helpful. Wanted to ask, to start off on Brexit. Naturally, you price in U.S. dollars and following Brexit it now costs customers in the U.K. quite a bit more to buy Check Point products than they used to. Did that have any discernible impact on you in Q2? Or has there been any effect so far in Q3?

I didn't see much impact in Q2 and I don't know how to evaluate the impact for the third quarter. Again, it has some upside but it also has some risks in it because economical changes also create instability. But so far nothing of that that I think we are concerned or modeling into our future.

Yeah. And I can say in Q2, but it was towards the end of Q2 that it happened. We had pretty good results in U.K. and in general Europe was very strong. Gregg Moskowitz - Cowen & Co. LLC: Okay. Great. And Gil, in terms of R80, is it having any effect in the marketplace, do you think, at this point? Or is it too early in your view?

I think it's too early. I think that overall R80 is not expected to be – to have any financial contribution because it's part of our product and it's in the upgrade pack for existing customers. I think it generates more differentiation. I think customers – the initial feedback which we get is very positive. I read one quote, but the quote actually represents what many customers are saying. So I think overall customers love it and customers see it as a very important differentiation for the Check Point strength and the Check Point product line. Gregg Moskowitz - Cowen & Co. LLC: Great. And one last one, if I could. Gil, you mentioned the launch of your first security SaaS solution with SandBlast Cloud protecting Office 365. Does that imply that we'll see more SaaS security offerings from Check Point going forward?

Probably yes, probably not the last, yes. Gregg Moskowitz - Cowen & Co. LLC: Perfect. Thanks very much.

Our next question comes from the line of Shaul Eyal from Oppenheimer. Please proceed with your question. Shaul Eyal - Oppenheimer & Co., Inc. (Broker): Thank you. Hi. Good afternoon, guys. Two questions on my end. Gil, in your prepared remarks you indicated the recently introduced appliances being embraced by customers, resulting in a marked increase in unit sales. Can you provide us with more color on what you mean by marked increase? And also the success you are seeing in that respect, is it driven by greenfield opportunities or displacements? And I have a follow-up.

I think then we announced some of the appliances in the first quarter and some in the second quarter. The appliances that we announced in the first quarter are already, I think the transition is already 80% to 90% to them. The appliances we released in the second quarter we haven't released – I mean there are some sales of the older appliances, so it's about, I would say, 50% of the appliances on this one. So overall we are seeing very healthy acceptance. We've also seen a nice increase in unit sales and in dollar sales of the new appliances. So I think overall there's a good acceptance. Is it new customers or existing customers? I think it's both. I mean we have – most of our sales is to existing customers, but again we have very good examples of new customers that we won that they like our security architecture. Shaul Eyal - Oppenheimer & Co., Inc. (Broker): Got it. And probably relating to Gregg's second question, you guys operate now your vSEC, virtual security solution, on Amazon's Web Services Marketplace. I know it is probably a tiny fraction of revenues, but can you talk to us about how you currently see your relations with Amazon? And how do you envision AWS' impact on the security arena and in coming years?

I think first we are not limited to Amazon. One of the strengths of our security architecture, and especially of the vSEC family is that you get the same level of virtualization wherever you run: on the private cloud with an environment like VMware; whether you run on the public cloud with Azure and with Amazon. And I think you get a single architecture that covers all the bases and the entire infrastructure of the company. We do have good relationship with some of the large providers, and many of them refer business to us. And we are part of some of the marketplaces that they offer. And I think we've seen several hundred installations and successes in all these types of environments. So we are starting to take traction. Again, as you said, it's still a tiny fraction of revenues, but I think one of the strengths of what we have in Check Point is the software architecture that can bring the management and the software architecture to all types of environments. Shaul Eyal - Oppenheimer & Co., Inc. (Broker): Thank you.

Our next question comes from the line of Walter Pritchard from Citi. Please proceed with your question.

Hi. Thanks. Tal, I'm wondering if you could just clarify on the impact to guidance for the third quarter and fourth quarter. Is that incremental to what you talked about on the last call? Or is that the cumulative impact of the shift to ratable on the business?

So actually it's relating in total meaning on Q3, as Gil said, it's between $8 million to $10 million effect on the revenues, so the revenues will be reduced in $8 million to $10 million. The range that we provided was the $405 million to $435 million, so that's obviously included in it. And on the EPS, we said $0.03 and our range was $1.03 to $1.10. Then we said on Q4 it's going to be approximately double that amount which means $16 million to $20 million effect on the revenue and $0.06 effect in the EPS.

Okay. And then Gil – that makes sense, Tal. And then, Gil, on the comment around discounting, can you – you made a follow-up comment to what Tal mentioned in her script. Could you just clarify why you think you're seeing more need to discount at this point?

First, I mean we're not – discounting is not all over. The discounting is focused in certain areas. We do see a little bit of more discounting on maintenance contracts. And I think it's driven partly by competition, partly by the fact that customers in general and the overall IT environment is suffering from some issues and customers would like to maintain or reduce their ongoing budget. And I think part of it is our conscious decision to keep every customer, to maintain the customer base, and to focus our energy on winning new projects and new customers. So I think we've seen some pressure on the maintenance revenues. We are keeping, by the way, very high percentage of customers, our renewal rates are very good. So I mean – so I think it points to a lot of strength that we have. And I'm just pointing that out because it's something that we've seen.

Great. Thank you for the candor.

Our next question comes from the line of Michael Turits from Raymond James Financial. Please proceed with your question. Michael Turits - Raymond James & Associates, Inc.: Hey, guys. I might have missed it. But did you give the impact of the change in accounting on the 2Q results? Sorry, if I missed it.

Yeah. I said net approximately $6 million. Michael Turits - Raymond James & Associates, Inc.: Of this quarter. And then...

The net revenue effects. Michael Turits - Raymond James & Associates, Inc.: The net revenue effects. So okay. So a certain amount was more deferred and then some recognized.

Yup. Michael Turits - Raymond James & Associates, Inc.: And then – and so I assume those numbers of $8 million that you gave for the third quarter and fourth quarter, those are net numbers also, right?

Yes.

Yes. Correct. Michael Turits - Raymond James & Associates, Inc.: And then on the new appliance line, I know you said that it has driven an increase in – that it's driving double-digit growth in (23:19) what's been the impact on ASPs? And has it had a neutral effect on revenue growth or positive or negative?

I think overall it has a positive effect on revenue growth in the core product lines. In the core products lines, we actually had a pretty good quarter, and we've seen great success. We did have some shifts from one product family to another. There are product families that have grown on the account of some other product families. But overall I think we had a very, very good transition, much better than we had in the past. Again, it's too early to say because it's only a quarter, or a quarter-and-a-half into that, but the beginning is – it looks like it was made in a clean way.

And you know, Michael, I said that the core, it grew both in dollars and in units in double-digits. Now ASP slightly pulled down because the increase in units usually comes from the mid-range, right. But so the average ASP moved down but the total dollars actually also increased in the core appliances in double-digits. Michael Turits - Raymond James & Associates, Inc.: Great. Thanks.

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

Thank you. Tal, and Gil, I know you don't guide cash on deferred revenue, but to give us some confidence around the impact to the guidance from the shift to more subscription, can you even subjectively give us some commentary around the impact to cash flow and billings over the next couple of quarters?

That's actually – the transition from product to subscriptions should have no effect on the cash flow in general, right, because the booking amount is the total amount, it's just the accounting split between the subscription and the products.

Right. Okay. What about the total billings then? It should be the same?

(25:15)

First of all (25:16) but also the new appliances don't have an effect on that because we sell the appliances for the same amount except that the revenue recognition is different. And again, I think the most important element is not the revenue recognition. The most important element is that it creates a lot of upside opportunities for the future because we shift more revenues into annuity. And our historical results are showing that a lot of customers are renewing their subscription. And by the way, with the new appliances not all bundled options are mandatory. Some of them are optional. So we can expect that the customers that purchase a certain package, purchased it because they intend to renew it, and they really want it, so it's not just a reclassification in many cases. So overall I think we are very pleased with that change. Again in percentage wise, it's not huge. Let's not take it out of proportion. But still, I think, that the amount of dollars that we stated per quarter is still important to note.

Yeah. No. And I understand that. And – but I'm just trying to get to – I mean I would assume it's going to have a positive impact on deferred relative to what it would have been otherwise? And so your total billings would be about the same?

Sure.

Is that an accurate assessment?

Accurate assessment completely. The change in the split should not have an effect on the bookings.

Got it.

And therefore...

Very good. Okay. And if I could, just a quick follow, you guys have a ton of cash on the balance sheet, $3.7 billion of cash and marketable securities. It's good to see you increasing your share repurchase. But any thoughts on the M&A environment or even dividend? I know you've shied away from that in the past, but any thoughts today?

First we're looking at both options all the time. And I think we are looking very actively in various acquisition options, large, small, expansion, not expansion. And the reality is that it's very hard to find things that will really fit our architecture. And I think we're very, very focused to deliver a very clean architecture that fits the customers' needs and not to try and become a supermarket for all types of different products. But I think we're definitely active on the M&A space. On the dividend front, we are looking at that and we are referring to the shareholders of that. I think we are regularly conducting informal surveys amongst shareholders. Right now, the majority of you guys, shareholders, don't want dividend. And personally, by the way, I'm not against it. But I think what the vast majority of shareholders still would prefer buyback and only buyback over dividend.

Great. Great. Thanks, for the detail.

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

Yeah. Thank you very much. So I just want to be clear, you had an annual guidance for revenue of $17.20 million to $17.90 million in the past. Is that adjusted downward by the $8 million to $10 million in Q3 and double that in Q4?

Theoretically yes. Remember that it's basically moving to the lower part of the range. But remember, we already have Q1 and Q2 behind us, so some of that range shrank anyway. And that's why we gave you the effect on Q3 and we gave you the effect on Q4 so you can calculate it yourself.

Okay. And the other question I have is that your sales and marketing expenses have been growing at mid-teens or higher growth rates for several quarters, 16% last quarter for example. And how long should we expect sales and marketing to remain elevated?

I think we'd like the sales and marketing to be even higher, what we'd like also the business results to be higher. I think we made a big investment last year and we are continuing the investment this year, not at the same pace as we've done last year. And I think I'm looking forward to see more of the results of the investment that we made last year.

Okay. Thank you.

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

Thank you. I've got a similar question to the last one just on the earnings. So your full year earnings guide on the prior call was $4.45 to $4.60. Could you just clarify what you're revising it to? Am I understanding that you're moving it down by $0.09, $0.03 in 3Q and $0.06 in 4Q? And then secondly, to the extent that you're adjusting the guidance top and bottom perhaps to the lower end of the prior range, is this entirely because of the transition from product to subscription? Or are other things weighing on that guidance as well? Thank you.

Sure. So again, we didn't give the full year but your assumption is the right assumption, meaning we expect Q3 and Q4, we basically said Q3 effect of the subscription is about $8 million to $10 million and the EPS is $0.03. And if you look at Q4 it's between $16 million to $20 million and $0.06 on the EPS. So you can take the numbers that are out there right now and you can pretty much see what we're thinking at this point of time. Please bear in mind that this is an estimate because the transition rate, the customers decide; it's not us. So if you remember last quarter I said I expect the effect on Q2 will be between $5 million to $10 million, it ended up to be $8 million on the products and $6 million net on the revenues. So it's very hard to calculate because there's many things out there relating to the mix of the products, which customer product is – which product the customer chooses. And each appliance has a different bundled proportion, and that's why I'm just putting it out there to note that it's not an exact number, it's a best estimate that we can do based on what we see so far. And that's not dollars that are losses, dollars that are moving to the deferred revenues. So that's one comment. And the second, are there other things that are affecting? There's always other things because you're talking about guidance and forecasts. We discussed about the update and maintenance price pressure that you can see. We talked about it last quarter. We're talking about it this quarter so that can have some effect as well.

Okay. Thank you very much.

Our next question comes from the line of Fred Grieb from Nomura Securities. Please proceed with your question.

Hey. Thanks. Two for me. First up, so we've seen several acquisitions recently in the security space and a few more being telegraphed. I'm just wondering has there been any change to your M&A strategy? Are you potentially going to get more aggressive in terms of pricing or is it just kind of the exact same strategy but there's more sellers who are willing to sell at this point?

I think the M&A, that the large ones that we've seen in our industries, are less related to us. I'm not sure that I fully understand their logic. But I think with – they're very complementary and very cooperative to what we are doing which is the companies that we are in very good relationship with. As to what it will do moving forward, I don't know. I mean I'm – again, we're looking for the right technologies that can complement our product line and let us provide the customers with more consolidating and better architected solutions. And when we'll find these, large or small, we will act upon it.

Got it. And then, the second question, if I pro forma your Q3 guidance for about $9 million in additional ratable revenue recognition and I pro forma Q2 for about $6 million, I'm getting to a flat sequential guide which is a bit lower than you've guided for Q3 in the last two years. I'm wondering if maybe that's partially due to the last two years have been a very strong security selling environment and we're seeing that weaken a bit. Or if there's any other change there, if you could comment on that?

Well, again I think it's the same question of the previous one. We take into account the reduction as a result of the move or shift from the product to the deferred revenue that's an effect between $8 million to $10 million. Typically, Q2 and Q3 are very similar. And on the subscription, there's the effect of the discount. And you have a range, right? The range is $405 million to $435 million so this depends on the end results of the bookings.

And also, without being too bullish on the market, again, it's hard for me to predict about the overall market conditions and so on. And I'm sure that there's many risks in it. But at least in our pipeline, our pipeline is quite healthy for the third quarter and fourth quarter. So for my people, I don't see any slowdown.

Got it. Thanks a lot.

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

Hi, guys. Thanks for taking my question. So, first one. You discussed this a bit earlier, you mentioned that there could be an increase in the maintenance discounting for the installed base. I was just curious how does that compare to maybe the 2012 period where the revenue base was perhaps a bit slower growing than today?

Can you repeat it, please?

So, I was wondering how your level of discounting on maintenance compares to the 2012 period?

That's a bit too back. I don't really have the numbers from 2012. Right? But I don't know why you compare to 2012, but I can say definitely the increase there is over the past few years, we see slight increase over time in the discount rate.

Okay. Okay, and then for my follow-up, I was curious, you mentioned there was about $16 million to $20 million for 4Q transitioning to ratable revenue. Should we think about that as a run rate for the quarters into 2017? Or is that substantially higher because its 4Q and you tend to have more revenue come through in 4Q?

Q4 is much higher because Q4 typically, significantly larger quarter definitely versus Q2. Now, remember there's two factors here. One is that the booking of the product in Q4 is by far the highest and also the transition rate that I expect in the second half of the year is much more than I had in the first half of the year.

Okay. Great. Thanks very much.

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

Thanks. Hi, guys. Just wondering on the impact of the shift to deferred revenue from the bundling, I thought I heard you say that that would get recognized over 12 months, or it should be a benefit to short-term deferred revenue, and now normally the short-term deferred does decline quarter over quarter in June? But I would have thought with the increased impact of the bundle on the shift, that we would have seen less of a decline but it seems like the decline short-term deferred revenue this year was a little bit more. Is that just from the discounting, or is there anything else to read into it?

Just from the discounting, but again, bear in mind in Q2 the deferred revenues enjoyed very little because we just started with a transition, so it's probably enjoyed in total about $6 million. Towards the end of the year, most of the amount we are talking about is actually going to be in the deferred revenue, so it will be a bigger effect.

And then in your prepared remarks, I think, Gil, you mentioned that the appliance sales, the new appliance sales were up double digits in units and revenue. Maybe I'm just, semantics, but I just wanted to make sure. In the quarter were you only selling the new appliances or were total appliance sales up double digits in units and dollars?

The core, all them used together. If you take all the core appliances, which means all the appliances from the low 2000 Series all the way up to the 21000 Series, and all the new appliances which means the 3000 Series all the way up to the 23000 Series, all of them together increased in double digits.

There are a few appliances that are not part of our core...

Management and so on.

Management and everything and super high-end and...

HIPAA (38:43)

And third party appliances that we do. These are not the majority of appliances but we don't count them as the core.

That's very helpful. Thank you.

Our next question comes from the line of Rob Owens from Pacific Crest Securities. Please proceed with your question.

Great. Thank you very much. Was there any FX impact to OpEx this quarter, either positive or negative?

Not materially. It actually was very similar to Q2 last year.

Great. Thanks, Tal. And then second, kind of just dovetailing Sterling's question a little bit about that $6 million because I thought that would have showed up more so in short-term deferred. Is the proper way to look at the health of the business, given the transition, more of a short-term billings metric now where we look at the change in short-term deferred revenue as well as the revenue that shows about 6% growth here in the quarter?

Can you repeat the question?

Yeah. So given the changes that you're seeing with the move to subscription right now, should we be more so looking at a short-term type of billings metric where the revenue plus the change in short term deferred relative to how this transition is playing out? And I think that renders about 6% year.-over-year growth here.

I would say, no. I would say don't look only in one metric because one metric can be confusing, so you need to connect the data. That's why we're here to help. The deferred revenues is a good indicator, short one of course, long-term can shift very easily. But bear in mind that it can be moved depend on the booking timing. So it's one indicator but it's not a be all and end all, that's one. And you definitely can see that in the deferred we tell you software blades increased, and update and maintenance had pressures from the discount, that's one. When you look at the P&L, I always recommend when you look at the revenues, look at the products together with the update, with the subscription, because products and subscription, all of them are our products. Subscription is product that's sold as a subscription, and products are the ones that are sold at license. But in reality, unlike in the accounting, many times they are not separated. It's one appliance being split, and I would recommend to look at the total number of product and subscription together that's why we have product, subscription and the total of both lines. So I would recommend to look at both.

Great. And lastly was there any change in contract duration in the second quarter? Was it relatively consistent with multi-year support deals versus one year?

I think update and maintenance was pretty much similar.

But I think one thing you need to be careful with, most of our business is one year. The deals that we have that are multi-years are usually very large, unpredictable deals. So the fluctuation in our long-term deferred revenues are bigger than the short term ones.

Great. Thank you, guys.

Our next question comes from the line of Jonathan Ho from William Blair. Please proceed with your question. Jonathan F. Ho - William Blair & Co. LLC: Good morning. Can you talk a little bit about the competitive environment? And have you seen any changes or shifts in competitor behavior over the course of the quarter?

I think generally the environment remains competitive and we kind of see the same things. There are certain areas, like with our SandBlast product and the sandboxing technology that I think we have significant competitive wins in displacement. There are other competitors which we see that the more these vendors become larger the more they have installed base and the more we displace them. But overall I think the environment has been competitive and remains competitive in a similar way. Jonathan F. Ho - William Blair & Co. LLC: Got it. And can you talk a little bit about, from a geographic perspective, how you see your pipeline coming about? Is there any unusual activity in either EMEA or the APAC region or Americas that you would note?

No I think we've seen consistent investment and consistent growth in most areas. As I mentioned in the second quarter, we had very good results in Europe and in Asia. The pipeline for the third quarter and fourth quarter looks equally positive on all regions. Jonathan F. Ho - William Blair & Co. LLC: Great. Thank you.

Our next question comes from the line of Gabriela Borges from Goldman Sachs. Please proceed with your question. Gabriela Borges - Goldman Sachs & Co.: Good morning. Thank you for taking my question. I wanted to follow up on the discussion on the transition rate between the older generation appliances and the newer generation appliances. Gil, I think you'd mentioned that the transition was going faster than expected or better than it had gone in the past. So maybe just a little more detail on how you would typically expect these types of transitions to go, the over 50% uptake that you're seeing in new appliances? I'm just curious if you ever see customers waiting for new products to be released before they do their upgrade cycles? Thank you.

I think it's we are positive about the transition. I think in the second-half of the year the majority of appliances will be from the new series and the new appliances, and now that we have completed releasing all the products, I think everything is out. Whether customers were waiting or not for the new appliances, I don't know. We are trying to be relatively – it's not that we have like an annual update cycle that a customer can wait for in the hardware. It happens – I mean a big shift like that happened only like four years ago, so it's not something that happens every time, and I don't know if customers were waiting or not. It's a very good question. I think what we do see in our customer base in general and that we were actually pleased from the transition, that many times customers are quite conservative and like to stick to the equipment that we've already certified and that we are used to. And here we're seeing a faster shift towards the new appliances, which is a very good sign. Gabriela Borges - Goldman Sachs & Co.: That's helpful. Thank you. And as a follow-up, if I could, Tal, we talked about the revenue recognition impacts from the transition. Just curious as we look out to the model impacts for next year, do you think we should expect to see a positive tailwind to the software subscription business as you see some of this bundle business come up for renewal? Thank you.

So there can be two effects, here we saw it in the previous transaction. A, you're absolutely right. All the ones that are bundled this year because that portion is increased I'm hoping to see them renewing next year. On the bundled, we typically if you remember when we launched the previous one we talked about 30% or so that are renewing. This is a bundle, so it's a very high conversation rate. I hope it will stay the same and there can be a nice generation of software blades for next year. So it continues the growth of this very important revenue stream, so that's one. When it comes to the product revenues, just the product, then it's over time getting easier and easier, obviously, because right now we're getting a hit on the product line, but this is based on 50% transition. Next year we're going to have 100% transition, so on the comparable, there are going to be still some weight to carry there. On the subscription it should be very nice growth. Gabriela Borges - Goldman Sachs & Co.: Great. That's helpful, Tal. Thank you.

Our next question comes from the line of Ben Bollin from Cleveland Research Company. Please proceed with your question.

Good afternoon. Thanks for taking my questions. I wanted to go back to the sales and marketing investments. When do you expect to see a larger incremental contribution from those efforts? What's the duration of time that it takes to start seeing those results? And then I have a follow-up.

So I think remember last year when we invested we wanted to see a cycle typically maybe 12 months, but bear in mind we are in a competitive market. We are focused on two focus areas, the mobility and the threat emulation. On the threat emulation, mobility we already see results much more significant in the zero-day attack and threat emulation, the advanced threats. We see very nice increases, very strong way over $10 million a quarter. We don't provide the exact number at this point, but I can tell you we're very excited about it and the growth here was very nice. So we see great results in the threat emulation. So here we already see. When you talk about the mobility we had a very significant increase, but it's still a small number so I think it will take longer time. And in the core, you see very strong refresh. We talked about double-digit units probably significant portion out of it is the refresh. And on the other hand you see the pressures on the update and maintenance. So all in all you see our guidelines. So I think I don't expect a major revolution there except for continuing on the execution on new products and new customers and new technologies to balance that phenomena of a competitive environment.

Okay. Second part, you talked a little bit about customers and how they have been looking at maybe some decisions a little differently. Can you talk a little bit about how you've seen customer behavior change over the last several quarters? How has macro-political, other concerns influenced either deployment strategies, duration, amount they are willing to spend? Anything you've seen there would be interesting? Thanks.

I mean I wouldn't say that we've seen any major change in that. I think it's all the same things balanced. I mean customers are trying to stay on tight budgets. On the other hand, they want to invest in cyber security. Customers do want to consolidate their infrastructure. Customers do value more and more the value of an integrated architecture and an integrated solution, and I think the more often they get the experience of working with our advanced threat prevention, with our mobility, I think they realize that this can be real. People can consolidate their infrastructure, they can get prevention and not just detection. I think the key differentiator in our strategy compared to most other cyber security vendors is we fight for first time prevention, zero-day attack prevention, and not just follow-up or let the malware get through the network and trying to detect it later. And I think the more experience customers are gaining with our solutions, I think the more confident they feel about the ability to actually activate and use these technologies and get the level of cyber security they deserve.

Thank you.

Our next question comes from the line of Brent Thill with UBS. Please proceed with your question.

Gil, you mentioned the strength in units. Can you just tell us where you saw that? Was it the enterprise or more mid-tier level in terms of the quarter?

I think the main strength that we've seen was in the core enterprise. That's, again, I think the best market that I would say. It's not the very high-end deals that are unique. It's not other parts of the market. It's the core market that we have when we have many happy customers.

And the consolidation trend you're seeing in the cyber industry, do you think that there's a chance for you to play a role in having less supply and sales and selling more software through that consolidation phase through some of these new solutions? Or do you still believe that appliances are going to continue that type of pace you've been seeing?

I think custom, appliances will still play an important role because customers need a platform to run any time of software. I think we're definitely seeing more and more growth in sales that are software and that are subscription. We're seeing more and more growth of things that are fulfilled by the cloud. I mean I've talked about securing the cloud. There's also our cloud that helps customers secure their environment, like our SandBlast services that part of them are provided by the cloud and that grows. So definitely yes, we are seeing them in the bid. The fastest-growing area of our business is the subscription and the software and the software part. And that's accelerating in its growth rate and producing actually quite nice growth rates.

Thank you.

Our next question comes from the line of Scott Zeller with Needham & Company. Please proceed with your question. Scott Zeller - Needham & Co. LLC: Hi. Thank you. Could you give us some color, please, around your business trends with service provider? You'd mentioned on previous calls you'd had the super high-end appliances, and now on this call you've been mentioning the success you've had in small and medium new appliances releases. So as far as business with service provider at the high end and also with perhaps remote-managed appliances can you comment on how the business has been going with service provider?

I think we had a decent business with service provider. I think the potential for upsides of that is pretty high, and I think we're just scratching the surface of it. Like I just mentioned in Q2, for example, we had a major alliance with Telefónica around serving their customers, which is one of the largest telcos in the world and that's notable. But still I think we are – this is a very nice opportunity for us moving forward. Scott Zeller - Needham & Co. LLC: Thank you.

We have time for one last question. Our last question comes from the line of Ryan MacDonald with Wunderlich Securities. Please proceed with your question.

Good morning, guys. Yeah. And I apologize if I missed this, but I know you talked about in the back half of the year for the guidance here and the impact coming from the model transition. Did you quantify at all the expected impact from additional discounting in the back of the year on the guidance?

Not really. I think it's very hard to measure it. Right? Because it's an effect that takes time to translate. What we did talk about is we talked about – and remember we have in the original guidance just a range, but the numbers are there already, so everybody can look at the numbers that are there also by the analyst and by Check Point. And what I said specifically, which is a very big impact, is relating to the product impact and we said specifically on the revenues the net effect from the transition, from product into subscription is going to be a reduction. So that's the specific effect of that one which is about again $8 million to $10 million for Q3, and $16 million to $20 million in Q4. We did not calculate the effect of the discounting.

Okay. And just one quick follow-up on the kind of transition to the sales of the new appliances. You mentioned in the quarter with the majority of the appliance sales or a large increase in appliance sales in the second quarter there was an increase in units and in dollars but ASPs were down slightly. Would we expect in the back half of the year then a continued decline in ASPs as we transition to some of those newer appliances?

I think again it's too early to say but we're already 50% transitioned, so it's quite a significant number. And so far, I don't know if you follow the 2011 for us, but we saw a huge increase in the unit but there was a big decline in the ASP because they could have purchased, for a much lower price, the same strength of appliance. So this time we actually succeeded to monitor it better and we priced it in a way that allowed us to balance it and the result was the unit increasing double digits, ASP decreased but not in double digits. And the net-net result is that the dollar value for this quarter increased in the double digit. I hope it will stay the same in H2, but it's very hard to predict.

Thank you.

So right now it's managed to get it into a positive effect, not a negative one.

Thank you, guys. That was our last caller and we appreciate you guys attending and we'll look forward to seeing you throughout the quarter and also in the coming end of year report or third quarter report in October. Thank you, and have a great day.

Thank you.

Thank you.

Ladies and gentlemen, this does conclude today's tele-conference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.