Check Point Software Reports Financial Results for the First Quarter of 2006
Strong Cash Flow and Growth in Deferred Revenues
Redwood City, CA —
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, 2006.
Financial Highlights for the First Quarter of 2006:
- Revenues: $133.6 million, a decrease of 3 percent compared to $137.7 million in the first quarter of 2005.
- Deferred Revenues: $178.9 million, an increase of $9.9 million or 6 percent over deferred revenues as of December 31, 2005.
- Net Income — GAAP: $61.6 million, a decrease of 16 percent compared to $73.7 million in the first quarter of 2005. Equity based compensation expenses in the amount of $11.1 million are being reported for the first time in the first quarter of 2006 GAAP results pursuant to SFAS 123(R). This expense was not included in the 2005 results.
- Net Income — Non GAAP: $75.1 million, a decrease of 1 percent compared to $75.8 million in the first quarter of 2005. Non-GAAP net income excludes equity based compensation expenses and acquisition related charges1.
- Earnings per Diluted Share — GAAP: $0.25, a decrease of 13 percent compared to $0.29 in the first quarter of 2005. Equity based compensation expenses are included in the first quarter of 2006 GAAP results pursuant to SFAS 123(R).
- Earnings per Diluted Share — Non GAAP: $0.31, an increase of 3 percent compared to $0.30 in the first quarter of 2005. Non-GAAP EPS excludes equity based compensation expenses and acquisition related charges.
- Share Repurchase Program: During the first quarter of 2006, Check Point purchased 3.0 million shares at a total cost of approximately $63.9 million.
- Cash Flow: Total cash flow, excluding share buy back, was $129.5 million, an increase of 26% compared to the first quarter of 2005 and the largest in Check Point's history. Cash flow from operations was $112.0 million, an increase of 15 percent compared to the first quarter of 2005.
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 and other acquisition related expenses.
See "Use of Non-GAAP Financial Information" and "Reconciliation between GAAP and Non-GAAP Statement of Income" below for more information regarding Check Point's use of Non-GAAP measures.
"Our first quarter financial results demonstrated the strength in our subscription business driven by customer loyalty, the success of our SmartDefense program and the resulting strong operating cash flow and increase in deferred revenues," said Gil Shwed, chairman and chief executive officer of Check Point Software. "In general, our financial results were impacted by a change in our decision to acquire Sourcefire, lower product revenues and a slower pace of growth in our industry."
During the first quarter of 2006, we introduced product enhancements strengthening our unified security architecture. Introductions during the quarter included:
- Connectra – delivered enhanced and most comprehensive SSL VPN with new security, application and performance features.
- Eventia Analyzer 2.0
– launched simplified security event management (SEM) that
automatically prioritizes security events for decisive, intelligent
action, and has extended support to the endpoint and correlates data
for anti-virus applications, personal firewalls and operating systems.
- VPN-1 Edge NGX – unveiled extended security protection for remote offices with advanced intrusion prevention and anti-virus to complement its firewall and VPN technologies and ensure that branch offices have protection from worms and viruses.
Partial List of Awards in the First Quarter 2006:
- Named VARBusiness Magazine Five-Star Vendor for Channel Partner Program – certified as a Five-Star Partner for commitment and strength of programs for IT integrators, resellers and consultants.
- Recognized by CRN as 2006 Channel Champion and for Channel Chief, Kevin Maloney
– named 2006 Channel Champion in network security software category
based on results from study indicating channel leadership. Channel
Chief recognition is granted to influential executives who consistently
defend, promote and execute effective channel partner programs and
strategies.
- Received Two Coveted Security Awards from SC Magazine – granted Best Enterprise Firewall and Best Remote Access VPN Solution for IPSec awards.
Mr. Shwed continued, "We are entering the second quarter with a high level of activity and many initiatives in our pipeline. The upcoming version of VPN-1 NGX will significantly change our core product lines, elevating the level of functionality, security, manageability and performance and continue to raise the bar for the best internet security."
Conference Call and Webcast Information
Check Point will host a conference call with the investment community
on April 24, 2006 at 8:30 AM ET/5:30 AM PT. To listen to the live
webcast, please visit Check Point's website at http://www.checkpoint.com/ir. A replay of the conference call will be available through May 8, 2006 at the Company's website http://www.checkpoint.com/ir or by telephone at (973) 341-3080, pass code 7246520.
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 Point's management believes the non-GAAP
financial information provided in this release is useful to investors'
understanding and assessment of Check Point's 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 such as deemed it important to
provide all this information to investors.
Safe Harbor Statement
Certain statements in this press release are forward-looking
statements. Forward-looking statements include statements regarding
Check Point's expectations regarding operating results for the second
quarter of 2006 and for the full year 2006 and delivery of product
introductions, enhancements and product acceptance. 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: the impact on revenues of general market conditions in the
company's industry; 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; the amount of equity based compensation charges and other
factors and risks discussed in Check Point's Annual Report on Form 20-F
for the year ended December 31, 2005, 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
Check Point Software Technologies (www.checkpoint.com)
is a leader in securing the Internet. It is a market leader in the
worldwide enterprise firewall, personal firewall and VPN markets.
Through its NGX platform, the company delivers a unified security
architecture for a broad range of perimeter, internal, Web, and
endpoint security solutions that protect business communications and
resources for corporate networks and applications, remote employees,
branch offices and partner extranets. The company's ZoneAlarm product
line is the highest rated personal computer security suite, comprised
of award-winning endpoint security solutions that protect millions of
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 over 350 leading companies. Check
Point solutions are sold, integrated and serviced by a network of more
than 2,200 Check Point partners in 88 countries and its customers
include 100% of Fortune 100 companies and tens of thousands of
businesses and organizations of all sizes.
|
CHECK POINT SOFTWARE TECHNOLOGIES
LTD.
CONDENSED CONSOLIDATED STATEMENT OF INCOME |
||||
|
(In thousands, except per share amounts)
|
||||
|
Three Months Ended
March 31, |
||||
| 2005 | ||||
 |
|
|
|
|
| (unaudited) | ||||
| Revenues: | ||||
|
Licenses |
$54,819
|
$65,522 | ||
|
Software subscriptions |
62,527
|
58,447 | ||
|
|
|
|
|
| Total product revenues | 117,346 | 123,969 | ||
|
Support, training and consulting |
16,246 | 13,692 | ||
|
|
|
||
| Total revenues |
133,592
|
137,661
|
||
|
|
|
||
| Operating expenses: | ||||
|
Cost of revenues |
6,713
|
5,636
|
||
|
Research and development |
16,283
|
13,147
|
||
|
Selling and marketing |
36,212
|
34,720
|
||
|
General and administrative |
11,234
|
6,348
|
||
|
Amortization of intangible assets and acquisition related |
2,432 | 1,411 | ||
|
|
|
||
| Total operating expenses |
72,874
|
61,262
|
||
|
|
|
||
| Operating income |
60,718
|
76,399
|
||
| Financial income, net |
15,508
|
12,401
|
||
|
|
|
||
| Income before income taxes on income |
76,226
|
88,800
|
||
| Taxes on income |
14,593
|
15,094
|
||
|
|
|
||
| Net income |
$61,633
|
$73,706
|
||
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share (basic) |
$0.25
|
$0.30
|
||
|
|
|
|
|
|
|
|
|
|
| Number of shares used in computing earnings per share (basic) |
243,740
|
247,894
|
||
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share (fully diluted) |
$0.25
|
$0.29
|
||
|
|
|
|
|
|
|
|
|
|
|
| Number of shares used in computing earnings per share (fully diluted) |
245,698
|
256,150
|
||
|
|
|
|
|
|
|
|
|
|
|
|
CHECK POINT SOFTWARE TECHNOLOGIES
LTD.
CONDENSED NON-GAAP CONSOLIDATED STATEMENT OF INCOME |
||||
|
(In thousands, except per share amounts)
|
||||
|
Three Months Ended
March 31, |
||||
| 2005 | ||||
|
|
|
|
|
| (unaudited) | ||||
| Revenues: | ||||
|
Licenses |
$54,819
|
$65,522 | ||
|
Software subscriptions |
62,527
|
58,447 | ||
|
|
|
|
|
| Total product revenues | 117,346 | 123,969 | ||
|
Support, training and consulting |
16,246 | 13,692 | ||
|
|
|
||
| Total revenues |
133,592
|
137,661
|
||
|
|
|
||
| Operating expenses: | ||||
|
Cost of revenues |
6,603
|
5,552
|
||
|
Research and development |
12,734
|
12,776
|
||
|
Selling and marketing |
33,593
|
34,061
|
||
|
General and administrative |
5,912
|
6,248
|
||
|
|
|
||
| Total operating expenses |
58,842
|
58,637
|
||
|
|
|
||
| Operating income |
74,750
|
79,024
|
||
| Financial income, net |
15,508
|
12,401
|
||
|
|
|
||
| Income before income taxes on income |
90,258
|
91,425
|
||
| Taxes on income |
15,135
|
15,636
|
||
|
|
|
||
| Net income |
$75,123
|
$75,789
|
||
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share (basic) |
$0.31
|
$0.31
|
||
|
|
|
|
|
|
|
|
|
|
| Number of shares used in computing earnings per share (basic) |
243,740
|
247,894
|
||
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share (fully diluted) |
$0.31
|
$0.30
|
||
|
|
|
|
|
|
|
|
|
|
|
| Number of shares used in computing earnings per share (fully diluted) | 245,698 |
256,150
|
||
|
|
|
|
|
|
|
|
|
|
|
|
CHECK POINT SOFTWARE TECHNOLOGIES
LTD.
RECONCILIATION BETWEEN GAAP TO NON-GAAP STATEMENT OF INCOME |
|||||
|
(In thousands, except per share amounts)
|
|||||
|
Three Months Ended
March 31, 2006 |
|||||
| GAAP | Non-GAAP | ||||
|
|
|
|
|
|
| (unaudited) | (unaudited) | ||||
| Revenues: | |||||
|
Licenses |
$54,819 |
-
|
$54,819 | ||
|
Software subscriptions |
62,527 |
-
|
62,527 | ||
|
|
|
|
|
|
| Total product revenues | 117,346 | - | 117,346 | ||
|
Support, training and consulting |
16,246 | - | 16,246 | ||
|
|
|
|
|
||
| Total revenues |
133,592
|
-
|
133,592
|
||
|
|
|
|
|
||
| Operating expenses: | |||||
|
Cost of revenues |
6,713
|
(110)a
|
6,603
|
||
|
Research and development |
16,283
|
(3,549)a
|
12,734
|
||
|
Selling and marketing |
36,212
|
(2,619)a
|
33,593
|
||
|
General and administrative |
11,234
|
(5,322)a
|
5,912
|
||
|
Amortization of intangible assets and |
2,432
|
(2,432)b
|
-
|
||
|
|
|
|
|
||
| Total operating expenses |
72,874
|
(14,032)
|
58,842
|
||
|
|
|
|
|
||
| Operating income |
60,718
|
14,032
|
74,750
|
||
| Financial income, net |
15,508
|
-
|
15,508
|
||
|
|
|
|
|
||
| Income before income taxes on income |
76,226
|
14,032
|
90,258
|
||
| Taxes on income |
14,593
|
542c
|
15,135
|
||
|
|
|
|
|
||
| Net income |
$61,633
|
$13,490
|
$75,123
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share (basic) |
$0.25
|
$0.06
|
$0.31
|
||
|
|
|
|
|
|
|
|
|
|
|
|
| Number of shares used in computing earnings per share (basic) |
243,740
|
243,740
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share (fully diluted) |
$0.25
|
$0.06
|
$0.31
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of shares used in computing earnings per share (fully diluted) |
245,698
|
245,698
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
The effect of stock-based compensation. The Company adopted the
provisions of Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment" on January 1, 2006 using the modified–prospective
transition method.
(b) The effect of amortization of intangible assets and acquisition related expenses.
(c) Tax effect of amortization of intangible assets.
|
CHECK POINT SOFTWARE TECHNOLOGIES
LTD.
SELECTED CONSOLIDATED BALANCE SHEET DATA |
||||
|
(In thousands)
ASSETS |
||||
|
March 31,
2006 |
December 31,
2005 |
|||
|
|
|
|
|
|
(unaudited)
|
(unaudited)
|
|||
| Current assets: | ||||
|
Cash and cash equivalents
|
$354,625
|
$298,531
|
||
| Marketable securities |
1,048,500
|
1,044,312
|
||
|
Trade receivables, net
|
97,543
|
127,129
|
||
|
Other receivables and prepaid expenses
|
20,823
|
20,646
|
||
|
|
|
|
|
|
Total current assets
|
1,521,491
|
1,490,618
|
||
|
|
|
|
|
| Long-term assets: | ||||
|
Long-term investments |
387,802
|
382,500
|
||
|
Property and equipment, net |
7,427
|
7,665
|
||
|
Intangible assets, net |
18,711
|
20,215
|
||
|
Goodwill |
174,295
|
174,295
|
||
|
Deferred income taxes, net |
6,653
|
8,694
|
||
|
Other assets |
918
|
875
|
||
|
|
|
|
|
|
Total long-term assets |
595,806
|
594,244
|
||
|
|
|
|
|
| Total assets |
$2,117,297
|
$2,084,862
|
||
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
||||
| Current Liabilities: | ||||
|
Deferred revenues
|
$178,855
|
$168,998
|
||
|
Trade payables and other accrued liabilities
|
135,553
|
136,872
|
||
|
|
|
|
|
|
Total current liabilities
|
314,408
|
305,870
|
||
|
|
|
|
|
| Accrued severance pay, net | 3,789 | 3,271 | ||
|
|
|
|
|
| Total liabilities | 318,197 | 309,141 | ||
|
|
|
|
|
| Shareholders' Equity: | ||||
|
Share capital
|
774
|
774
|
||
|
Additional paid-in capital
|
399,135
|
386,529
|
||
| Deferred stock-based compensation | (2,690) | (2,831) | ||
| Treasury shares at cost | (414,256) | (380,834) | ||
| Accumulated other comprehensive loss | (13,540) | (8,952) | ||
|
Retained earnings
|
1,829,677
|
1,781,035
|
||
|
|
|
|
|
|
Total shareholders' equity
|
1,799,100
|
1,775,721
|
||
|
|
|
|
|
| Total liabilities and shareholders' equity |
$2,117,297
|
$2,084,862
|
||
|
|
|
|
|
|
|
|
|
|
| Total cash and cash equivalents, deposits and marketable securities | 1,790,927 | 1,725,343 | ||
|
|
|
|
|
|
CHECK POINT SOFTWARE TECHNOLOGIES
LTD.
SELECTED CONSOLIDATED CASH FLOW DATA |
||||
|
(In thousands)
|
||||
|
Three Months Ended
March 31, |
||||
|
2006
|
2005
|
|||
|
|
|
|
|
|
(unaudited)
|
(unaudited)
|
|||
| Cash flow from operating activities: | ||||
| Net income |
$61,633
|
$73,706
|
||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
|
Depreciation and amortization |
1,411
|
1,305
|
||
|
Decrease in trade and other receivables, net |
29,468
|
13,489
|
||
|
Increase in trade payables and other accrued liabilities |
9,056
|
4,594
|
||
|
Amortization of intangible assets |
1,504 | 1,411 | ||
|
Stock-based compensation |
11,601
|
1,214
|
||
|
Tax benefit related to exercise of stock options |
-
|
1,500
|
||
|
Other adjustments |
(2,649) | (159) | ||
|
|
|
|
|
| Net cash provided by operating activities |
112,024
|
97,060
|
||
|
|
|
|
|
| Cash flow from investing activities: | ||||
| Investment in property and equipment | (1,173) | (1,142) | ||
|
|
|
|
|
| Net cash used in investing activities | (1,173) | (1,142) | ||
|
|
|
|
|
| Cash flow from financing activities: | ||||
|
Proceeds from issuance of shares upon exercise of options |
17,408
|
6,742
|
||
|
Purchase of treasury shares |
(63,925)
|
(49,706)
|
||
|
Tax benefit related to exercise of stock options |
1,250 | - | ||
|
|
|
| |