SOURCE: Check Point Software Technologies Ltd.

Check Point Software Technologies Ltd.

July 26, 2016 05:00 ET

Check Point Software Technologies Reports 2016 Second Quarter Financial Results

SAN CARLOS, CA--(Marketwired - Jul 26, 2016) - Check Point® Software Technologies Ltd. (NASDAQ: CHKP) today announced its financial results for the second quarter ended June 30, 2016.

Second Quarter 2016:

  • Total Revenue: $423 million, representing a 7 percent increase year over year
  • GAAP Operating Income: $202 million, representing 48 percent of revenue
  • Non-GAAP Operating Income: $227 million, representing 54 percent of revenue
  • GAAP EPS: $0.95, representing an 8 percent increase year over year
  • Non-GAAP EPS: $1.09, representing a 10 percent increase year over year
  • Deferred Revenues: $892 million, representing a 14 percent increase year over year
  • Software Blades Subscriptions Revenues: $93 million, representing a 21 percent increase year over year

"We had a good second quarter with results toward the high-end of our expectations. Our newly launched security appliance lines optimized for threat prevention were embraced by customers and resulted in a marked increase in unit sales," said Gil Shwed, founder and chief executive officer, Check Point. "In addition, our advanced threat prevention and zero-day malware protection software experienced high-growth and contributed to the acceleration in our software blades subscriptions revenues."

Financial Highlights for the Second Quarter of 2016:

  • Total Revenue: $423 million compared to $395 million in the second quarter of 2015.
  • GAAP Operating Income: $202 million compared to $199 million in the second quarter of 2015.
  • Non-GAAP Operating Income: $227 million compared to $221 million in the second quarter of 2015.
  • GAAP Net Income and Earnings per Diluted Share: GAAP net income was $166 million compared to $163 million in the second quarter of 2015. GAAP earnings per diluted share were $0.95 compared to $0.88 in the second quarter of 2015.
  • Non-GAAP Net Income: Non-GAAP net income was $190 million compared to $183 million in the second quarter of 2015.
  • Non-GAAP Earnings per Diluted Share: $1.09 compared to $0.99 in the second quarter of 2015.
  • Deferred Revenues: As of June 30, 2016, deferred revenues were $892 million compared to $780 million as of June 30, 2015.
  • Cash Flow: Cash flow from operations of $202 million compared to $193 million in the second quarter of 2015.
  • Share Repurchase Program: During the second quarter of 2016, the company repurchased 2.93 million shares at a total cost of $246 million. In May 2016, the company announced that its board of directors has authorized an extension to the company's on-going share repurchase program. Under the updated program, effective immediately, Check Point is authorized to continue to repurchase up to an additional $250 million of shares up to an aggregate of $1.5 billion under the updated program.
  • Cash Balances, Marketable Securities and Short Term Deposits: $3,708 million as of June 30, 2016, compared to $3,611 million as of June 30, 2015.

For information regarding the non-GAAP financial measures discussed in this release, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures, please see "Use of Non-GAAP Financial Information" and "Reconciliation of GAAP to Non-GAAP Financial Information."

Business Highlights

Completed Launch of New Appliance Series (1400, 3000 & 5000) - These new optimized appliances provide organizations of any size the power to run advanced threat prevention capabilities, including the full inspection of encrypted data, without compromising performance. The successful launch of the 1400, 3000 and 5000 Series appliances complement the previous launch in January of the 15000 and 23000 Series appliances

Industry-Leading SandBlast™ Zero-Day Protection Extended to Cloud-Based Email - SandBlast Cloud is designed to safeguard Microsoft Office 365 email customers from modern, sophisticated threats such as ransomware and APTs, allowing organizations to move to cloud infrastructure with confidence. SandBlast Cloud also includes Check Point's unique CPU-level detection and Threat Extraction capabilities, proactively preventing attacks from reaching users.

R80 Security Management - R80 enables organization to consolidate security management and scale its operation to meet the demands of the most complex security environments.

We received the following industry accolades and announced the following partnership:

Number One in Worldwide Firewall Equipment Market Share - Check Point is the leader in worldwide market share in 1Q 2016 for Firewall Equipment, according to the Gartner Market Share: Enterprise Network Equipment by Market Segment, Worldwide reports.1

Top Position in Worldwide Combined Firewall and UTM Appliance Market - Check Point continued to be the number one vendor in worldwide combined Firewall and UTM appliance revenue for 1Q 2016, according to the IDC Worldwide Quarterly Security Appliance Tracker.2

Leader in the 2016 Gartner Magic Quadrant for Enterprise Network Firewalls - The new report evaluated the company's completeness of vision and ability to execute in areas such as security management and threat prevention. Check Point has been positioned as a Leader in Enterprise Network Firewalls since 1997.

Leader in the Forrester Automated Malware Analysts Wave - Forrester Research recognized Check Point as a 'Leader' in The Forrester Wave™: Automated Malware Analysis, Q2 2016. The company's advanced zero-day protection technology SandBlast was evaluated.

Check Point, ElevenPath Partnership - ElevenPath, a Telefónica company specializing in development of innovative security solutions, will be a provider of Check Point mobile security technologies for Telefónica corporate customers worldwide.

Our security research organization has also continued to expose vulnerabilities in today's infrastructure, which included critical vulnerabilities in mobile equipment and applications, such as:

HummingBad - Cyber criminals utilized HummingBad malware to control 10 million mobile devices globally, allowing them to manipulate the devices into downloading apps and clicking on advertisements to benefit the coalition of developers behind the malware. Check Point researchers discovered how this illegal network ran alongside a legitimate business of Android and iOS apps and analytics, and provided the details of their network operation.

Viking Horde - The Check Point Research Team uncovered a new Android malware campaign on Google Play code named "Viking Horde." Viking Horde conducts ad fraud, but can also be used for other attack purposes such as DDoS attacks, spam messages and more.

Nuclear Exploit Kit - One of the world's largest attack infrastructures was uncovered by the Check Point Research team. Nuclear is one of the top exploit kits, both in complexity and infection. These kits are a major part of the Malware-as-a-Service industry, which facilitate the delivery of various types of malware such as ransomware and banking trojans.

"Enterprises today are faced with many challenges as they seek to address the cybersecurity demands of increasingly sophisticated security attacks across the ever-expanding corporate infrastructure. From mobility to cloud and beyond, the Check Point R80 platform with SandBlast continues to lead the way in protecting our customers from known and unknown threats. Our leadership is acknowledged by industry experts and most importantly by the success of our customers," concluded Shwed.

Third Quarter 2016 Investor Conference Participation Schedule:

  • Pacific Crest 18th Annual Global Technology Leadership Forum
    August 8, 2016 - Vail, CO
  • Oppenheimer 19th Annual Technology Conference
    August 10, 2016 - Boston, MA
  • Citi 2016 Global Technology Conference
    September 7, 2016 - New York, NY

Members of Check Point's management team are expected to present at these conferences and discuss the latest company strategies and initiatives. Check Point's conference presentations are expected to be available via webcast on the company's web site. To view these presentations and access the most updated information please visit the company's web site at www.checkpoint.com/ir. The schedule is subject to change.

Conference Call and Webcast Information
Check Point will host a conference call with the investment community on July 26, 2016, at 8:30 AM ET/5:30 AM PT. To listen to the live webcast, please visit the website at: www.checkpoint.com/ir. A replay of the conference call will be available through August 2, 2016 on the company's website or by telephone at +1.201.612.7415, replay ID number 13641096.

About Check Point Software Technologies Ltd.
Check Point Software Technologies Ltd. (www.checkpoint.com) is the largest network cyber security vendor globally, providing industry-leading solutions and protecting customers from cyberattacks with an unmatched catch rate of malware and other types of threats. Check Point offers a complete security architecture defending enterprises -- from networks to mobile devices -- in addition to the most comprehensive and intuitive security management. Check Point protects over 100,000 organizations of all sizes.

©2016 Check Point Software Technologies Ltd. All rights reserved

1 Gartner, Inc., Market Share: Enterprise Network Equipment by Market Segment, Worldwide, 1Q16, Christian Canales, Petr Gorodetskiy, Naresh Singh, and Joe Skorupa, June 2016. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

2 Source: IDC Worldwide Quarterly Security Appliance Tracker 1Q2016, June 2016.

Legal Notice Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements in this press release include, but are not limited to, statements related to our expectations regarding our products and solutions and our participation in investor conferences during the third quarter of 2016. Our expectations and beliefs regarding these matters may not materialize, and actual results or events in the future are subject to risks and uncertainties that could cause actual results or events to differ materially from those projected. These risks include our ability to continue to develop platform capabilities and solutions; customer acceptance and purchase of our existing solutions and new solutions; the market for IT security continuing to develop; competition from other products and services; and general market, political, economic and business conditions. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission, including our Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 28, 2016. The forward-looking statements in this press release are based on information available to Check Point as of the date hereof, and Check Point disclaims any obligation to update any forward-looking statements, except as required by law.

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, operating income, operating margin and earnings per diluted share, which are adjustments from results based on GAAP to exclude, as applicable, stock-based compensation charges, amortization of intangible assets and acquisition related expenses and the related tax affects. Check Point's management uses these non-GAAP financial measures to evaluate our financial performance and operating trends, including period-to-period comparisons, because they exclude certain expenses and gains that management believes are not indicative of our core operating results. Check Point's management further believes that the exclusion of these expenses and gains provides a useful measure for period-to-period comparisons of underlying core revenue and operating costs that is focused more closely on the current costs necessary to operate the company's businesses and reflects its ongoing business in a manner that allows for meaningful analysis of trends. Check Point's management believes the non-GAAP financial information provided in this release is useful to investors' understanding and assessment of Check Point's ongoing core operations and prospects for the future. Historically, Check Point has also publicly presented these supplemental non-GAAP financial measures in order to assist the investment community to see the Company "through the eyes of management," and thereby enhance understanding of its operating performance. 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. A reconciliation of the non-GAAP financial measures discussed in this press release to the most directly comparable GAAP financial measures is included with the financial statements contained in this press release. 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.

 
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED STATEMENT OF INCOME
 
(In thousands, except per share amounts)
 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2016   2015   2016   2015
    (unaudited)   (unaudited)   (unaudited)   (unaudited)
Revenues:                        
  Products and licenses   $ 136,248   $ 132,284   $ 258,978   $ 246,581
  Software Blades subscriptions     92,700     76,627     180,828     150,976
Total revenues from products and software blades     228,948     208,911     439,806     397,557
  Software updates and maintenance     193,801     186,423     387,214     370,353
Total revenues     422,749     395,334     827,020     767,910
                         
Operating expenses:                        
  Cost of products and licenses     25,125     23,973     48,164     44,933
  Cost of software blades subscriptions     1,868     1,787     3,686     3,311
Total cost of products and software blades     26,993     25,760     51,850     48,244
  Cost of Software updates and maintenance     20,559     19,303     40,165     37,973
  Amortization of technology     546     540     1,092     716
Total cost of revenues     48,098     45,603     93,107     86,933
                         
  Research and development     43,854     36,230     86,188     71,754
  Selling and marketing     107,558     92,126     199,316     168,142
  General and administrative     21,088     22,297     44,037     44,988
Total operating expenses     220,598     196,256     422,648     371,817
                         
Operating income     202,151     199,078     404,372     396,093
Financial income, net     11,815     8,582     21,763     16,620
Income before taxes on income     213,966     207,660     426,135     412,713
Taxes on income     48,147     45,024     92,894     89,194
Net income   $ 165,819   $ 162,636   $ 333,241   $ 323,519
Basic earnings per share   $ 0.97   $ 0.90   $ 1.94   $ 1.78
Number of shares used in computing basic earnings per share     170,942     180,416     172,169     181,767
Diluted earnings per share   $ 0.95   $ 0.88   $ 1.89   $ 1.74
Number of shares used in computing diluted earnings per share     174,816     185,140     175,898     186,391
                         
                         
                         
CHECK POINT SOFTWARE TECHNOLOGIES LTD.  
RECONCILIATION OF GAAP TO NON GAAP FINANCIAL INFORMATION  
   
(In thousands, except per share amounts)  
   
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
                                 
GAAP operating income   $ 202,151     $ 199,078     $ 404,372     $ 396,093  
Stock-based compensation (1)     21,999       18,801       40,216       36,578  
Amortization of intangible assets and acquisition related expenses (2)     3,282       3,317       6,576       4,603  
Non-GAAP operating income   $ 227,432     $ 221,196     $ 451,164     $ 437,274  
                                 
GAAP net income   $ 165,819     $ 162,636     $ 333,241     $ 323,519  
Stock-based compensation (1)     21,999       18,801       40,216       36,578  
Amortization of intangible assets and acquisition related expenses (2)     3,282       3,317       6,576       4,603  
Taxes on the above items (3)     (653 )     (1,844 )     (2,496 )     (2,948 )
Non-GAAP net income   $ 190,447     $ 182,910     $ 377,537     $ 361,752  
                                 
Diluted GAAP Earnings per share   $ 0.95     $ 0.88     $ 1,89     $ 1.74  
Stock-based compensation (1)     0.12       0.10       0.23       0.11  
Amortization of intangible assets and acquisition related expenses (2)     0.02       0.01       0.04       0.03  
Taxes on the above items (3)     -       -       (0.01 )     (0.02 )
Diluted Non-GAAP Earnings per share   $ 1.09     $ 0.99     $ 2.15     $ 1.86  
                                 
Number of shares used in computing diluted Non-GAAP earnings per share     174,816       185,140       175,898       186,391  
                                 
(1) Stock-based compensation:                                
  Cost of products and licenses   $ 17     $ 16     $ 34     $ 30  
  Cost of software updates and maintenance     554       400       975       714  
  Research and development     3,452       2,862       6,298       5,241  
  Selling and marketing     5,560       4,323       7,803       7,919  
  General and administrative     12,416       11,200       25,106       22,674  
    $ 21,999     $ 18,801     $ 40,216     $ 36,578  
                                 
(2) Amortization of intangible assets and acquisition related expenses:                                
  Amortization of technology-cost of revenues   $ 546     $ 540     $ 1,092     $ 716  
  Research and development     1,897       1,897       3,794       2,352  
  Selling and marketing     839       880       1,690       1,535  
    $ 3,282     $ 3,317     $ 6,576     $ 4,603  
                                 
(3) Taxes on the above items   $ (653 )   $ (1,844 )   $ (2,496 )   $ (2,948 )
                                 
Total, net   $ 24,628     $ 20,274     $ 44,296     $ 38,233  
                                 
                                 
                                 
CHECK POINT SOFTWARE TECHNOLOGIES LTD.  
CONDENSED CONSOLIDATED BALANCE SHEET DATA  
   
(In thousands)  
   
ASSETS  
    June 30,     December 31,  
    2016     2015  
    (unaudited)     (audited)  
Current assets:                
Cash and cash equivalents   $ 209,728     $ 192,312  
Marketable securities and short-term deposits     1,117,098       1,091,915  
Trade receivables, net     272,567       410,763  
Prepaid expenses and other current assets     44,415       40,844  
Total current assets     1,643,808       1,735,834  
                 
Long-term assets:                
Marketable securities     2,381,161       2,331,187  
Property and equipment, net     53,950       48,692  
Severance pay fund     4,697       5,262  
Deferred tax asset, net     58,485       65,711  
Goodwill and other intangible assets, net     836,083       838,020  
Other assets     37,812       45,174  
Total long-term assets     3,372,188       3,334,046  
                 
Total assets   $ 5,015,996     $ 5,069,880  
                 
                 
LIABILITIES AND  
SHAREHOLDERS' EQUITY  
   
Current liabilities:                
Deferred revenues   $ 687,880     $ 717,528  
Trade payables and other accrued liabilities     334,289       339,325  
Total current liabilities     1,022,169       1,056,853  
                 
Long-term liabilities:                
Long-term deferred revenues     204,455       188,255  
Income tax accrual     306,869       283,215  
Deferred tax liability, net     -       240  
Accrued severance pay     9,126       9,451  
      520,450       481,161  
                 
Total liabilities     1,542,619       1,538,014  
                 
Shareholders' equity:                
Share capital     774       774  
Additional paid-in capital     1,043,946       987,331  
Treasury shares at cost     (4,513,143 )     (4,043,271 )
Accumulated other comprehensive gain (loss)     17,277       (4,250 )
Retained earnings     6,924,523       6,591,282  
Total shareholders' equity     3,473,377       3,531,866  
Total liabilities and shareholders' equity   $ 5,015,996     $ 5,069,880  
Total cash and cash equivalents, marketable securities and short-term deposits   $ 3,707,987     $ 3,615,414  
                 
                 
                 
CHECK POINT SOFTWARE TECHNOLOGIES LTD.  
SELECTED CONSOLIDATED CASH FLOW DATA  
   
(In thousands)  
   
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Cash flow from operating activities:                                
Net income   $ 165,819     $ 162,636     $ 333,241     $ 323,519  
Adjustments to reconcile net income to net cash provided by operating activities:                                
                                 
Depreciation of property and equipment     2,720       2,541       5,392       4,883  
Amortization of intangible assets     963       998       1,937       1,632  
Stock-based compensation     21,999       18,801       40,216       36,578  
Realized gain on marketable securities     (1,429 )     (7 )     (1,124 )     (79 )
Decrease (increase) in trade and other receivables, net     (21,635 )     (26,167 )     141,218       95,203  
Increase in deferred revenues, trade payables and other accrued liabilities     40,224       36,658       11,347       17,709  
Excess tax benefit from stock-based compensation     (3,683 )     (2,084 )     (4,814 )     (2,301 )
Deferred income taxes, net     (2,528 )     (650 )     (1,214 )     169  
Net cash provided by operating activities     202,450       192,726       526,199       477,313  
                                 
Cash flow from investing activities:                                
                                 
Cash paid in conjunction with acquisitions, net of acquired cash     -       (62,413 )     -       (96,544 )
Investment in property and equipment     (5,942 )     (3,164 )     (10,650 )     (5,845 )
Net cash used in investing activities     (5,942 )     (65,577 )     (10,650 )     (102,389 )
                                 
Cash flow from financing activities:                                
Proceeds from issuance of shares upon exercise of options     17,379       2,228       33,529       34,015  
Purchase of treasury shares     (245,671 )     (244,997 )     (492,937 )     (486,682 )
Excess tax benefit from stock-based compensation     3,683       2,084       4,814       2,301  
Net cash used in financing activities     (224,609 )     (240,685 )     (454,594 )     (450,366 )
                                 
Unrealized gain (loss) on marketable securities, net     6,913       (9,392 )     31,618       3,111  
                                 
Increase (decrease) in cash and cash equivalents, marketable securities and short term deposits    
 (21,188
)    
(122,928
)    
92,573
     
 (72,331
)
                                 
Cash and cash equivalents, marketable securities and short term deposits at the beginning of the period    
 3,729,175
     
3,733,530
     
3,615,144
     
 3,682,933
 
                                 
Cash and cash equivalents, marketable securities and short term deposits at the end of the period   $
 3,707,987
    $ 3,610,602     $ 3,707,987     $ 3,610,602