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Check Point Software Reports Financial Results for the First Quarter of 2007

Check Point® Software Technologies Ltd. (NASDAQ:CHKP), the worldwide leader in securing the Internet, today announced its financial results for the first quarter ended March 31, 2007.

Financial Highlights for the First Quarter of 2007

  • Revenues: $164.0 million, an increase of 23 percent, compared to $133.6 million in the first quarter of 2006. In the first quarter of 2007, network security contributed $146.5 million to revenues, an increase of 10 percent, compared to the first quarter of 2006. Data security contributed $17.5 million to revenues through the acquisition of Protect Data.
  • Deferred Revenues: $238.4 million, an increase of $34.3 million, or 17 percent, over deferred revenues as of December 31, 2006, and an increase of $59.5 million, or 33 percent, compared to deferred revenues as of March 31, 2006. The consolidation of the data security business contributed $13.3 million in deferred revenues to our balance sheet during the first quarter of 2007 through the acquisition of Protect Data.
  • Earnings per Diluted Share GAAP: $0.21, compared to $0.25 in the first quarter of 2006. The primary differences in GAAP earnings per share in the first quarter of 2007 compared to the first quarter of 2006 are the acquisition related charges as follows: an in-process R&D charge in the amount of $0.07 related to the acquisition of Protect Data and additional acquisition related charges (net) of $0.02 related to the acquisitions of Protect Data and NFR Security.
  • Earnings per Diluted Share Non GAAP: $0.35, an increase of 13 percent compared to $0.31 in the first quarter of 2006. Non-GAAP EPS excludes charges for in-process R&D, equity based compensation expenses and acquisition related charges1.
  • Net Income GAAP: $46.9 million, compared to $61.6 million in the first quarter of 2006. The primary differences in GAAP net income in the first quarter of 2007 compared to the first quarter of 2006 are the acquisition related charges as follows: an in-process R&D charge in the amount of $17.0 million related to the acquisition of Protect Data and additional acquisition related charges (net) of $5.4 million related to the acquisitions of Protect Data and NFR Security.
  • Net Income Non GAAP: $78.6 million, an increase of $3.5 million, or 5 percent, compared to $75.1 million in the first quarter of 2006. Non-GAAP net income excludes charges for in-process R&D, equity based compensation expenses and acquisition-related charges.
  • Share Repurchase Program: During the first quarter of 2007, Check Point purchased 2.3 million shares at a total cost of approximately $55.6 million.
  • Cash Flow: Cash flow from operations was $110.0 million, compared to $116.6 million in the first quarter of 2006.
  • Cash and Investments Balance: $1.12 billion as of March 31, 2007

See Use of Non-GAAP Financial Information and Reconciliation between GAAP and Non-GAAP Statement of Income below for more information regarding Check Points use of Non-GAAP financial measures.

Our business in the first quarter produced healthy financial results and marks a good start to 2007, said Gil Shwed, chairman and chief executive officer of Check Point Software. These results reflect growth in our network security business with the success of our new products and subscription programs as well as our expansion into the data security market.

During the first quarter of 2007, we introduced products aligned with our PURE focus on IT security and strengthened our unified security architecture. Key business highlights and product introductions included the following:

-- Expanded Unified Security Architecture into Data Security - In the
   first quarter we made a big step in expanding the Check Point
   business into the data security field with the completion of the
   Protect Data acquisition on January 17, 2007. The new data security
   layer we added to our architecture enables customers to keep their
   mobile data secure and minimizes the risk of data loss and theft.

-- New Version of Network Security Products (NGX R65) with Enhanced   Features and Performance - Launched a new version of the NGX
   platform which significantly reduces the complexity of enterprise
   network security management. This latest release includes the
   ability to add security management plug-ins for better integration
   of current and future security functionalities, expands internal
   security through new network access control (NAC) functionality and
   includes new features such as Web filtering, VoIP enhancements,
   additional security protections and more.

   As part of the NGX R65 release, VPN-1 Power sets a new industry
   standard for security performance for combined firewall and
   intrusion prevention speeds through an open server: 12 Gigabits per
   second (Gbps) for firewall throughput and up to 5.1 Gbps intrusion
   prevention throughput.

-- Check Point UTM-1 Security Appliances to Address the   Mid-Market - Unveiled a powerful new line of unified threat
   management (UTM) appliances with multi-layered protection against
   Internet threats. This new line of appliances is based upon Check
   Point's proven enterprise security expertise and the company's
   vision of a Unified Security Architecture for businesses. The
   appliances are easily deployed and can be centrally controlled to
   help simplify management for multiple sites.

-- Check Point Integrity Achieved Prominent EAL 4 U.S. Government   Certification - Certified for endpoint firewall, application, IM
   and spyware security. Check Point is now the only security vendor
   certified for all critical network security categories - firewall,
   VPN, IDS, IPS, endpoint security - and for our data security
   products.

Partial List of Awards in the First Quarter 2007:

  • Recognized by VARBusiness as a Five-Star Partner Program and Amnon Bar-Lev as a Top 60 Channel Executive Named for delivering on channel commitments and for excellence in partner enablement and support.
  • Received a CNET Editors Choice Award for ZoneAlarm Internet Security Suite 7 Recognized for providing, the perfect balance between best-of-breed security protection and ease of use.

Mr. Shwed continued, In the first quarter, we launched our PURE security initiative that positions us uniquely with the technology, solutions and architecture that focus on our customers IT security needs of the future. Early evidence of the success of our extended unified security architecture is reflected in the growth we experienced this quarter across our network security and data security businesses.

Conference Call and Webcast Information

Check Point will host a conference call with the investment community on April 26, 2007 at 8:30 AM ET/5:30 AM PT. To listen to the live webcast, please visit Check Points website at http://www.checkpoint.com/ir. A replay of the conference call will be available through May 10, 2007 at the Company's website http://www.checkpoint.com/ir or by telephone at (973) 341-3080, pass code 8655662.

1 Equity based compensation expenses refer to the amortized fair value of all equity based awards granted to employees. Acquisition related charges refer to the impact of the amortization of intangible assets, acquired in-process R&D and other acquisition related expenses.

Use of Non-GAAP Financial Information

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Check Point uses non-GAAP measures of net income and earnings per share, which are adjustments from results based on GAAP to exclude non-cash equity based compensation charges in accordance with SFAS 123R and acquisition related charges. Check Points management believes the non-GAAP financial information provided in this release is useful to investors understanding and assessment of Check Points on-going core operations and prospects for the future. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Management uses both GAAP and non-GAAP information in evaluating and operating business internally and as such has determined that it is important to provide this information to investors.

Safe Harbor Statement

Certain statements in this press release are forward-looking statements. Forward-looking statements include statements regarding Check Points belief that its new PURE focus on IT security positions it strategically as the provider customers will rely on in the future as they build out their IT security architecture, and Check Points belief that early evidence of the success of its extended unified security architecture is reflected in the growth it experienced this quarter across its network security and data security businesses. Because these statements pertain to future events they are subject to various risks and uncertainties, 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: whether customers purchase and adopt Check Point solutions for their IT security architecture, the mix of sales of new products and long-term subscriptions; economic and political uncertainties; the impact of political changes and weaknesses in various regions of the world, including the commencement or escalation of hostilities or acts of terrorism; the inclusion of network security functionality in third-party hardware or system software; any foreseen and unforeseen developmental or technological difficulties with regard to Check Point's products; changes in the competitive landscape, including new competitors or the impact of competitive pricing and products; rapid technological advances and changes in customer requirements to which Check Point is unable to respond expeditiously, if at all; a shift in demand for products such as Check Point's; factors affecting third parties with which Check Point has formed business alliances; timely availability and customer acceptance of Check Point's new and existing products; and other factors and risks discussed in Check Point's Annual Report on Form 20-F for the year ended December 31, 2006, which is on file with the Securities and Exchange Commission. Check Point assumes no obligation to update information concerning its expectations.

About Check Point Software Technologies Ltd.

Check Point Software Technologies Ltd. (www.checkpoint.com) is a leader in securing the Internet. The company is a market leader in the worldwide enterprise firewall, personal firewall, data security and VPN markets. Check Points PURE focus is on IT security with its extensive portfolio of network security, data security and security management solutions. Through its NGX platform, Check Point delivers a unified security architecture for a broad range of security solutions to protect business communications and resources for corporate networks and applications, remote employees, branch offices and partner extranets. The company also offers market leading data security solutions through its Pointsec product line, protecting and encrypting sensitive corporate information stored on PCs and other mobile computing devices. Check Point's award-winning ZoneAlarm Internet Security Suite and additional consumer security solutions protect millions of consumer PCs from hackers, spyware and data theft. Extending the power of the Check Point solution is its Open Platform for Security (OPSEC), the industry's framework and alliance for integration and interoperability with "best-of-breed" solutions from hundreds of leading companies. Check Point solutions are sold, integrated and serviced by a network of Check Point partners around the world and its customers include 100 percent of Fortune 100 companies and tens of thousands of businesses and organizations of all sizes.

©20032007 Check Point Software Technologies Ltd. All rights reserved. Check Point, AlertAdvisor, Application Intelligence, Check Point Express, Check Point Express CI, the Check Point logo, ClusterXL, Confidence Indexing, ConnectControl, Connectra, Connectra Accelerator Card, Cooperative Enforcement, Cooperative Security Alliance, CoSa, DefenseNet, Dynamic Shielding Architecture, Eventia, Eventia Analyzer, Eventia Reporter, Eventia Suite, FireWall-1, FireWall-1 GX, FireWall-1 SecureServer, FloodGate-1, Hacker ID, Hybrid Detection Engine, IMsecure, INSPECT, INSPECT XL, Integrity, Integrity Clientless Security, Integrity SecureClient, InterSpect, IPS-1, IQ Engine, MailSafe, NG, NGX, Open Security Extension, OPSEC, OSFirewall, Policy Lifecycle Management, Provider-1, Safe@Home, Safe@Office, SecureClient, SecureClient Mobile, SecureKnowledge, SecurePlatform, SecurePlatform Pro, SecuRemote, SecureServer, SecureUpdate, SecureXL, SecureXL Turbocard, Sentivist, SiteManager-1, SmartCenter, SmartCenter Express, SmartCenter Power, SmartCenter Pro, SmartCenter UTM, SmartConsole, SmartDashboard, SmartDefense, SmartDefense Advisor, Smarter Security, SmartLSM, SmartMap, SmartPortal, SmartUpdate, SmartView, SmartView Monitor, SmartView Reporter, SmartView Status, SmartViewTracker, SofaWare, SSL Network Extender, Stateful Clustering, TrueVector, Turbocard, UAM, UserAuthority, User-to-Address Mapping, VPN-1, VPN-1 Accelerator Card, VPN-1 Edge, VPN-1 Express, VPN-1 Express CI, VPN-1 Power, VPN-1 Power VSX, VPN-1 Pro, VPN-1 SecureClient, VPN-1 SecuRemote, VPN-1 SecureServer, VPN-1 UTM, VPN-1 UTM Edge, VPN-1 VSX, Web Intelligence, ZoneAlarm, ZoneAlarm Anti-Spyware, ZoneAlarm Antivirus, ZoneAlarm Internet Security Suite, ZoneAlarm Pro, ZoneAlarm Secure Wireless Router, Zone Labs, and the Zone Labs logo are trademarks or registered trademarks of Check Point Software Technologies Ltd. or its affiliates. ZoneAlarm is a Check Point Software Technologies, Inc. Company. All other product names mentioned herein are trademarks or registered trademarks of their respective owners. The products described in this document are protected by U.S. Patent No. 5,606,668, 5,835,726, 6,496,935, 6,873,988, and 6,850,943 and may be protected by other U.S. Patents, foreign patents, or pending applications.

CHECK POINT SOFTWARE TECHNOLOGIES LTD.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

 (In thousands, except per share amounts)

Three Months Ended
March 31, March 31,
2007  2006 
(unaudited) (unaudited)
Revenues:
Products and licenses $66,048  $54,819 
Software subscriptions 67,576  62,527 
Services 30,345  16,246 
Total revenues 163,969  133,592 
Operating expenses:
Cost of revenues 16,960  8,067 
Research and development 18,868  16,283 
Selling and marketing 52,162  36,363 
General and administrative 14,100  12,161 
Acquired in process research and development

17,000 

Total operating expenses 119,090  72,874 
Operating income 44,879  60,718 
Financial income, net 13,068  15,508 
Income before income taxes 57,947  76,226 
Taxes on income 10,999  14,593 
Net income $46,948  $61,633 

Earnings per share (basic)

$0.21 

$0.25 

Number of shares used in computing earnings per share (basic)

224,917 

243,740 

Earnings per share (diluted)

$0.21 

$0.25 

Number of shares used in computing earnings per share (diluted)

227,691 

245,698 

CHECK POINT SOFTWARE TECHNOLOGIES LTD.

RECONCILIATION OF SUPPLEMENTAL FINANCIAL INFORMATION

 (In thousands, except per share amounts)

Three Months Ended
March 31, March 31,
2007  2006 
(unaudited) (unaudited)
GAAP operating income $44,879  $60,718 
Stock-based compensation (1) 8,338  11,600 
Amortization of intangible assets and acquisition related expenses (2)

8,963 

2,432 

Acquired in process research and development 17,000 
Non-GAAP operating income $79,180  $74,750 
GAAP net income $46,948  $61,633 
Stock-based compensation (1) 8,338  11,600 
Amortization of intangible assets and acquisition related expenses (2)

8,963 

2,432 

Acquired in process research and development 17,000 
Taxes on amortization of intangible assets and acquisition related expenses (3)

(2,646)

(542)

Non-GAAP net income $78,603  $75,123 
GAAP Earnings per share (diluted) $0.21  $0.25 
Stock-based compensation (1) 0.04  0.05 
Amortization of intangible assets and acquisition related expenses (2) 0.04  0.01 
Acquired in process research and development 0.07  0.00 

Taxes on amortization of intangible assets and acquisition related expenses (3)

(0.01) 0.00 
Non-GAAP Earnings per share (diluted)

$0.35 

$0.31 

Number of shares used in computing Non-GAAP earnings per share (diluted)

227,691 

245,698 

(1) Stock-based compensation:
Cost of revenues $128  $110 
Research and development 1,010  3,549 
Selling and marketing 1,721  2,619 
General and administrative 5,479  5,322 
Total $8,338  $11,600 
(2 & 3) Amortization of intangible assets and acquisition related expenses:
Cost of revenues $6,262  $1,354 
Selling and marketing 2,701  151 
General and administrative 927 
(2) Subtotal before taxes 8,963  2,432 
(3) Taxes on income (2,646) (542)
Total $6,317  $1,890 

CHECK POINT SOFTWARE TECHNOLOGIES LTD.

CONDENSED CONSOLIDATED BALANCE SHEET DATA

(In thousands)

ASSETS

March 31, December 31,
2007  2006 
(unaudited) (unaudited)
Current assets:
Cash and cash equivalents $246,068  $519,443 
Marketable securities 446,473  571,621 
Trade receivables, net 135,632  141,881 
Other receivables and prepaid expenses 23,170  22,408 
Total current assets 851,343  1,255,353 
Long-term assets:
Marketable securities 428,965  558,874 
Property, plant and equipment, net 51,946  47,192 
Intangible assets, net 191,147  23,117 
Goodwill 656,540  182,115 
Deferred income taxes, net 6,977  6,977 
Other assets 655  534 
Total long-term assets 1,336,230  818,809 
Total assets $2,187,573  $2,074,162 

LIABILITIES AND

SHAREHOLDERS EQUITY

Current liabilities:
Deferred revenues $238,403  $204,149 
Trade payables and other accrued liabilities 175,153  153,900 
Total current liabilities 413,556  358,049 
Deferred tax liability, net 43,200 
Accrued severance pay, net 5,407  4,580 
Minority 447 
Total liabilities 462,610  362,629 
Shareholders equity:
Share capital 774  774 
Additional paid-in capital 431,786  422,381 
Treasury shares at cost (775,834) (728,909)
Accumulated other comprehensive loss (1,107) (6,293)
Retained earnings 2,069,344  2,023,580 
Total shareholders equity 1,724,963  1,711,533 
Total liabilities and shareholders equity $2,187,573  $2,074,162 
Total cash and cash equivalents and marketable securities

1,121,506 

1,649,938 

CHECK POINT SOFTWARE TECHNOLOGIES LTD.

SELECTED CONSOLIDATED CASH FLOW DATA

(In thousands)

Three Months Ended
March 31, March 31,
2007  2006 
(unaudited) (unaudited)
Cash flow from operating activities:
Net income $46,948  $61,633 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment 1,237  1,411 
Decrease in trade and other receivables, net 38,568  29,468 
Increase (decrease) in trade payables and other accrued liabilities (5,786) 9,057 
Acquisition of in process research and development 17,000 
Amortization of intangible assets 8,963  1,504 
Stock-based compensation 8,338  11,600 
Other adjustments (5,260) 1,932 
Net cash provided by operating activities 110,008  116,605 
Cash flow from investing activities:
Cash paid in conjunction with the acquisition of Pointsec, net

(594,034)

Investment in property and equipment (4,422) (1,173)
Net cash used in investing activities (598,456) (1,173)
Cash flow from financing activities:
Proceeds from issuance of shares upon exercise of options

7,517 

17,408 

Purchase of treasury shares (55,627) (63,925)
Tax benefit related to exercise of stock options 1,250 
Net cash used in financing activities (48,110) (45,267)
Unrealized gain (loss) on marketable securities, net 8,126  (4,581)
Increase (decrease) in cash and cash equivalents and marketable securities

(528,432)

65,584 

Cash and cash equivalents and marketable securities at the beginning of the period

1,649,938 

1,725,343 

Cash and cash equivalents and marketable securities at the end of the period

1,121,506 

1,790,927 

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