Home Page | Skip to Navigation | Skip to Content | Skip to Search | Skip to Footer

Check Point Software Reports 2006 Fourth Quarter and Annual Financial Results

Record Fourth Quarter Revenues 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 fourth quarter and year ended December 31, 2006.

"Our fourth quarter business and results were strong, providing a nice finish to 2006," said Gil Shwed, chairman and chief executive officer of Check Point Software. "Our performance this quarter was driven by impressive business volume as evidenced by the combined increase in both revenues and deferred revenues."

Financial Highlights for the Fourth Quarter of 2006:

  • Total Revenues: $160.1 million, an increase of 3 percent, compared to $156.1 million in the fourth quarter of 2005.
  • Deferred Revenues: $204.1 million, an increase of $30.7 million, or 18 percent, compared to deferred revenues as of September 30, 2006, and an increase of $35.2 million, or 21 percent, compared to deferred revenues as of December 31, 2005.
  • Earnings per Diluted Share – GAAP: $0.35, compared to $0.36 in the fourth quarter of 2005. Equity based compensation expenses1 of $0.04 are included in the fourth quarter of 2006 GAAP results pursuant to SFAS 123(R).
  • Earnings per Diluted Share – Non GAAP: $0.40, an increase of 8 percent, compared to $0.37 in the fourth quarter of 2005. Non-GAAP EPS excludes equity based compensation expenses and acquisition related charges. 
  • Net Income – GAAP: $79.5 million, compared to $89.2 million in the fourth quarter of 2005. The primary difference in net income in the fourth quarter of 2006 compared to the fourth quarter of 2005 is equity based compensation expenses in the amount of $9.0 million which are being included in the fourth quarter of 2006 GAAP results pursuant to SFAS 123(R). Equity based compensation expenses of $0.8 million in the fourth quarter of 2005 relate to prior acquisitions. Net income in the fourth quarter of 2006 also includes acquisition related in-process R&D in the amount of $1.1 million.
  • Net Income – Non GAAP: $90.6 million, the same when compared to $90.9 million in the fourth quarter of 2005. Non-GAAP net income excludes equity based compensation expenses and acquisition related charges.
  • Cash Flow: cash flow from operations was $77.7 million, compared to $81.5 million in the fourth quarter of 2005.
  • Share Repurchase Program: during the fourth quarter of 2006, Check Point repurchased 1.4 million shares at a total cost of $31.7 million.

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.

Financial Highlights for the Year Ended December 31, 2006:

  • Revenues: $575.1 million, compared to $579.4 million for the year ended December 31, 2005.
  • Earnings per Diluted Share – GAAP: $1.17, compared to $1.27 for the year ended 2005. Equity based compensation expenses of $0.15 are included in the 2006 GAAP results pursuant to SFAS 123(R).
  • Earnings per Diluted Share – Non GAAP: $1.35, an increase of 4 percent, compared to $1.30 for the year ended 2005. Non-GAAP EPS excludes equity based compensation expenses and acquisition related charges.
  • Net Income – GAAP: $278.0 million, compared to $319.7 million for the year ended 2005. Net income for the year ended 2006 includes equity based compensation expenses in the amount of $36.4 million, which are being included in 2006 GAAP results pursuant to SFAS 123(R), and acquisition related in-process R&D in the amount of $1.1 million. In 2005, equity based compensation expenses of $3.7 million related to prior acquisitions.
  • Net Income – Non GAAP: $320.3 million, compared to $326.9 million for the year ended 2005. Non-GAAP net income excludes equity based compensation expenses and acquisition related charges.
  • Cash Flow: cash flow from operations was $358.3 million, compared to $346.9 million for the year ended 2005.
  • Cash and Investments Balance: $1.65 billion as of December 31, 2006.
  • Share Repurchase Program: during the 2006, Check Point repurchased 23.2 million shares at a total cost of $435.5 million.

See "Use of Non-GAAP Financial Information" and "Reconciliation of GAAP to Non-GAAP Financial Information" below for more information regarding Check Point's use of non-GAAP measures.

Business Highlights and Introductions during 2006
During the year, we introduced many products and technologies as we continued to expand and unify our portfolio of security solutions. We also initiated a first step in our strategy for expanding our unified security architecture into data security with the acquisition of Protect Data. Key business highlights and product introductions included the following:

  • Expanding Unified Security Architecture into Data Security with the Acquisition of Protect Data – In the fourth quarter of 2006, we announced a cash tender offer to acquire Protect Data AB, 100 percent owner of Pointsec, a worldwide provider of solutions for automatic data encryption that keeps sensitive information, stored on mobile computing devices such as laptops, PDAs and smartphones, confidential and secure. With the acquisition of Pointsec, Check Point initiates the next phase of its corporate strategy: the addition of a data security solution layer to extend protection to a company's important information. As of January 23, 2007, Check Point had acquired 96 percent of the equity securities of Protect Data pursuant to the offer and through purchases on the open market.
  • Expands Intrusion Preventions Capabilities to Fortify Enterprise Networks with the Acquisition of NFR Security – In the fourth quarter of 2006, we also acquired NFR Security, Inc., a leader in real-time threat prevention. NFR Security's award-winning intrusion prevention technologies will augment our unified security architecture, offering the highest level of protection against Internet attacks.

  • Launched VPN-1 Power and VPN-1 UTM Offerings with New Version of NGX Platform – Enhanced the framework of our entire portfolio of security solutions with focus on two major software product lines: VPN-1 Power for enterprises with demanding performance environments and VPN-1 UTM solutions with fully integrated and easy to manage unified threat management software.

  • Expanded ZoneAlarm Security Solutions – Introduced ZoneAlarm Secure Wireless Router, a consumer-focused appliance to complement the security offered by our award-winning ZoneAlarm software and leverage Check Point's renowned enterprise-class embedded NGX security technologies. Also, we recently launched ZoneAlarm 7.0, enhanced with a new antivirus engine, improved anti-spyware and updates to the innovative OSFirewall.

  • Initiated Collaborative Enterprise Support (CES) Program – Created a new support program which is a combination of subscription and support delivered jointly by Check Point and our partners. This program provides added value to customers and partners by improving the support our customers receive and has been successfully implemented in both Europe and the Asia Pacific region.

  • Achieved Prominent EAL 4 U.S. Government Certification – Certified for all four critical network security categories – firewall, VPN, IDS/IPS and remote management.

Mr. Shwed continued, "2006 was a year of building. We expanded our product portfolio and service programs and embarked on an extended strategy with the addition of data security. We had a strong finish to 2006 and believe the initiatives implemented in 2006 will drive growth in 2007."

Conference Call and Webcast Information
Check Point will host a conference call with the investment community on January 24, 2007 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 February 7, 2007 at the company's website http://www.checkpoint.com/ir or by telephone at (973) 341-3080, pass code 8288046.

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 operating income, net income and earnings per share, which include adjustments from results based on GAAP to exclude non-cash equity based compensation charges in accordance with SFAS 123(R) in 2006 and APB 25 in 2005 and acquisition related charges, as well as taxes on amortization of intangible assets and acquisition related expenses. 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 as such deemed it important to provide this information to investors.

Safe Harbor Statement
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, including statements related to Check Point's expectations regarding its continued strategy and efforts to develop a unified security architecture; Check Point's belief that the acquisition of Protect Data initiates the next phase of Check Point's corporate strategy to add a data security solution to extend protection of a company's important information; Check Point's belief that NFR Security's intrusion prevention technologies will augment Check Point's unified security architecture; and Check Point's belief that initiatives implemented in 2006 will drive growth in 2007. 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 include, but are not limited to: general market conditions in the Check Point's industry; economic and political uncertainties; whether Check Point's acquisitions can be integrated into the company, and whether the technology acquired in such acquisitions can be integrated into Check Point's product offerings; the impact of political changes and weaknesses in various regions of the world, including hostilities or acts of terrorism in Israel, where Check Point's international headquarters are based; 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 or beliefs.

About Check Point Software Technologies Ltd.
Check Point Software Technologies Ltd. (www.checkpoint.com) is a leader in securing the Internet. It is a market leader in the worldwide enterprise firewall, consumer Internet security 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 Internet Security Suite and additional consumer security solutions are among the highest rated in the industry today, proactively protecting millions of people from hackers, spyware, viruses and identity 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 thousands 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.

###

©2003-2007 Check Point Software Technologies Ltd. All rights reserved. Check Point, Application Intelligence, Check Point Express, Check Point Express CI, the Check Point logo, AlertAdvisor, ClusterXL, ConnectControl, Connectra, Cooperative Enforcement, Cooperative Security Alliance, CoSa, DefenseNet, Eventia Suite, Eventia, Eventia Analyzer, Eventia Reporter, FireWall-1, FireWall-1 GX, FireWall-1 SecureServer, FloodGate-1, Hacker ID, IMsecure, INSPECT, INSPECT XL, Integrity, Integrity SecureClient, Integrity Clientless Security, InterSpect, IQ Engine, NG, NGX, Open Security Extension, OPSEC, OSFirewall, Policy Lifecycle Management, Provider-1, Safe@Office, SecureClient, SecureKnowledge, SecuRemote, SecurePlatform, SecurePlatform Pro, SecureServer, SecureUpdate, SecureXL, SecureXL Turbocard, 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, Zone Labs, and the Zone Labs logo are trademarks or registered trademarks of Check Point Software Technologies Ltd. or its affiliates. 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
 
Year Ended
   
December 31,
  September 30,   December 31,  
December 31,
   
2006
  2006   2005  
2006
  2005
   
(unaudited)
(unaudited)
(unaudited)  
(unaudited)
(unaudited)
Revenues:                    

Products and licenses

  $69,863   $58,787   $78,978  
$241,961
  $281,364

Software subscriptions

 
67,906
  64,517   61,585  
258,500
  239,319

Services

  22,326   19,214   15,495   74,680   58,667
Total revenues  
160,095
 
142,518
 
156,058
 
575,141
 
579,350
                     
Operating expenses:                    

Cost of revenues

 
8,706
 
8,064
 
6,456
 
31,017
 
25,126

Research and development

 
15,750
  14,266  
12,451
 
62,210
 
50,542

Selling and marketing

 
42,871
 
37,862
 
36,600
 
156,510
 
142,108

General and administrative

 
10,566
 
10,383
 
5,824
 
42,576
 
24,244

Amortization of intangible assets and acquisition related expenses

  1,504   1,504   1,410   6,945   5,642

Amortization of in process research and development

  1,060   -   -   1,060   -
Total operating expenses  
80,457
 
72,079
 
62,741
 
300,318
 
247,662
                     
Operating income  
79,638
 
70,439
 
93,317
 
274,823
 
331,688
Financial income, net  
16,326
 
15,595
 
13,987
 
63,647
 
54,177
Income before income taxes  
95,964
 
86,034
 
107,304
 
338,470
 
385,865
Taxes on income  
16,423
 
14,897
 
18,067
 
60,443
 
66,181
Net income  
$79,541
 
$71,137
 
$89,237
 
$278,027
 
$319,684
                     
Earnings per share (basic)  
$0.35
 
$0.31
 
$0.36
  $1.18  
$1.30
                     
Number of shares used in computing earnings per share (basic)  
226,471
 
231,008
 
244,517
 
235,519
 
245,520
                     
Earnings per share (diluted)  
$0.35
 
$0.31
 
$0.36
 
$1.17
 
$1.27
                     
Number of shares used in computing earnings per share (diluted)  
228,865
 
231,656
 
248,585
 
236,769
 
251,747
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(In thousands, except per share amounts)
 
Three Months Ended
  Year Ended
  December 31,  
September 30,
  December 31,   December 31,
  2006  
2006
  2005   2006   2005
  (unaudited)   (unaudited)
(unaudited)   (unaudited)   (unaudited)
GAAP operating income $79,638   $70,439   $93,317   $274,823   $331,688

Stock-based compensation1

9,004   6,473   751   36,392   3,745

Amortization of intangible assets and acquisition related expenses2

1,504   1,504   1,410   6,945   5,642

Amortization of in process research and development

1,060   -   -   1,060   -
Non-GAAP operating income $91,206   $78,416   $95,478   $319,220   $341,075
                   

GAAP net income

$79,541   $71,137   $89,237   $278,027   $319,684
Stock-based compensation1
9,004
 
6,473
 
751
 
36,392
 
3,745

Amortization of intangible assets and acquisition related expenses2

1,504   1,504   1,410   6,945   5,642

Amortization of in process research and development

1,060   -   -   1,060   -

Taxes on amortization of intangible assets and acquisition related expenses3

(542)   (542)   (541)   (2,166)   (2,166)
Non-GAAP net income $90,567   $78,572   $90,857   $320,258   $326,905
                   
GAAP Earnings per share (diluted) $0.35   $0.31   $0.36   $1.17   $1.27

Stock-based compensation1

0.04   0.02   0.00   0.16   0.02

Amortization of intangible assets and  acquisition related expenses2

0.01   0.01   0.01   0.03   0.02

Amortization of in process research and development

0.00   0.00   0.00   0.00   0.00

Taxes on amortization of intangible assets and acquisition related expenses3

0.00   0.00   0.00   -0.01   -0.01

Non-GAAP Earnings per share (diluted)

$0.40
 
$0.34
 
$0.37
 
$1.35
 
$1.30
                   

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

228,865
 
231,656
 
248,585
 
236,769
 
251,747
                   
1Stock-based compensation:                  

Cost of revenues

$252
 
$88
 
$113
 
$509
 
$408

Research and development

1,945
 
909
 
258
 
9,371
 
1,252

Selling and marketing

2,214
 
966
 
329
 
7,997
 
1,825

General and administrative

4,593
 
4,510
 
51
 
18,515
 
260

Total

$9,004
 
$6,473
 
$751
 
$36,392
 
$3,745