Check Point Software Reports Financial Results for the Second Quarter of 2006
Redwood City, CA —
Check Point® Software Technologies Ltd. (NASDAQ: CHKP), the worldwide leader in securing the Internet, today announced its financial results for the second quarter ended June 30, 2006.
"During the second quarter, we continued to generate good financial results which were in-line with our projections," said Gil Shwed, chairman and chief executive officer of Check Point Software. "While our market environment remained challenging, we are pleased with the sequential increase in our key financial metrics over the first quarter."
Financial Highlights for the Second Quarter of 2006:
- Total Revenues: $138.9 million, an increase of 4 percent compared to $133.6 million in the first quarter of 2006 and a decrease of 4 percent compared to $144.6 million in the second quarter of 2005.
- Total Product and License Revenues: $122.0 million, an increase of 4 percent compared to $117.3 million in the first quarter of 2006 and a decrease of 6 percent compared to $130.1 million in the second quarter of 2005.
- Net Income – GAAP: $65.7 million, an increase of 7 percent compared to $61.6 million in the first quarter of 2006 and a decrease of 16 percent compared to $78.0 million in the second quarter of 2005. The primary difference in net income in the second quarter of 2006 compared to the second quarter of 2005 is equity based compensation expenses in the amount of $9.3 million which are being reported in the second quarter of 2006 GAAP results pursuant to SFAS 123(R), compared to $0.9 million in equity based compensation expenses included in the 2005 results.
- Net Income – Non GAAP: $76.0 million, an increase of 1 percent compared to $75.1 million in the first quarter of 2006 and a decrease of 5 percent compared to $79.8 million in the second quarter of 2005. Non-GAAP net income excludes equity based compensation expenses and acquisition related charges.1
- Earnings per Diluted Share – GAAP: $0.27, an increase of 9 percent compared to $0.25 in the first quarter of 2006 and a decrease of 12 percent compared to $0.31 in the second quarter of 2005. Equity based compensation expenses are included in the second quarter of 2006 GAAP results pursuant to SFAS 123(R).
- Earnings per Diluted Share – Non GAAP: $0.32, an increase of 3 percent when compared to $0.31 in the first quarter of 2006 and the same when compared to $0.32 in the second quarter of 2005. Non-GAAP EPS excludes equity based compensation expenses and acquisition related charges.
- Deferred Revenues: $176.5 million, a decrease of $2.3 million or 1 percent compared to deferred revenues as of March 31, 2006 and an increase of $22.3 million or 14 percent compared to deferred revenues as of June 30, 2005.
- Share Repurchase Program: During the second quarter of 2006, Check Point repurchased 7.4 million shares at a total cost of approximately $138.4 million.
- Cash Flow: cash flow from operations was $87.2 million, an increase of 3 percent compared to the second 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 of Supplemental Financial Information" below for more information regarding Check Point's use of non-GAAP measures.
The highlight of our second quarter product evolution was the introduction of the new perimeter security solutions, VPN-1 Power and VPN-1 UTM, replacing our previous core products. Key products unveiled during the quarter included:
- VPN-1 Power – a complete line of products featuring integrated firewall, VPN and intrusion prevention along with patented SecureXL acceleration technologies for enterprises with demanding performance requirements.
- VPN-1 UTM – a complete line of unified threat management (UTM ) products combining firewall, VPN, intrusion prevention, antivirus and more in fully integrated and easy-to-manage solutions.
- New version of NGX Platform – the framework of our entire portfolio of security solutions now integrates endpoint security with perimeter, internal and Web security through unified security management console and introduces centralized, real-time updates of all Check Point security products to guard against the latest security threats and vulnerabilities.
- ZoneAlarm Internet Security Suite 6.5 – defends consumers against identity theft and advances spyware prevention.
Mr. Shwed continued, "We are executing on our product road map for 2006, enhancing our product offering with our new perimeter security product lines, VPN-1 Power and VPN-1 UTM. Furthering our strategy for a unified security architecture, we unveiled the latest version of the NGX security platform in the second quarter. We remain focused on providing proactive, comprehensive security solutions and executing on our business objectives."
Conference Call and Webcast Information
Check Point will host a conference call with the investment community
on July 18, 2006 at 5:00 PM ET/2:00 PM 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 August 1, 2006 at the Company's website http://www.checkpoint.com/ir or by telephone at (973) 341-3080, pass code 7588035.
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 in 2006 and APB 25 in
2005 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 execution on product road map,
delivery of new products and execution on business objectives. 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: general market conditions in the company's industry;
economic and political uncertainties; the impact of political changes
and weaknesses in various regions of the world,
including further escalation of 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.
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 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 percent of Fortune 100 companies and tens of thousands of
businesses and organizations of all sizes.
|
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS |
|||||||||||
|
(In thousands, except per share amounts)
|
|||||||||||
|
Three Months Ended
|
Six Months Ended
|
||||||||||
|
June 30,
|
March 31, | June 30, |
June 30,
|
||||||||
| 2006 | 2005 | 2005 | |||||||||
 |
|
|
|
|
|
|
|||||
| (unaudited) | (unaudited) | (unaudited) | |||||||||
| Revenues: | |||||||||||
|
Products and licenses |
$58,492
|
$54,819 | $71,248 |
$113,311
|
$136,770 | ||||||
|
Software subscriptions |
63,550
|
62,527 | 58,892 |
126,077
|
117,339 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Total product and license revenues | 122,042 | 117,346 | 130,140 | 239,388 | 254,109 | ||||||
|
Services |
16,894 | 16,246 | 14,423 | 33,140 | 28,115 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Total revenues |
138,936
|
133,592
|
144,563
|
272,528
|
282,224
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses: | |||||||||||
|
Cost of revenues |
7,534
|
6,713
|
6,586
|
14,247
|
12,222
|
||||||
|
Research and |
15,911
|
16,283
|
12,211
|
32,194
|
25,358
|
||||||
|
Selling and marketing |
39,565
|
36,212
|
37,385
|
75,777
|
72,105
|
||||||
|
General and |
10,393
|
11,234
|
6,063
|
21,627
|
12,411
|
||||||
|
Amortization of |
1,505 | 2,432 | 1,411 | 3,937 | 2,822 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
74,908
|
72,874
|
63,656
|
147,782
|
124,918
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
64,028
|
60,718
|
80,907
|
124,746
|
157,306
|
||||||
| Financial income, net |
16,218
|
15,508
|
13,468
|
31,726
|
25,869
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Income before income taxes |
80,246
|
76,226
|
94,375
|
156,472
|
183,175
|
||||||
| Taxes on income |
14,530
|
14,593
|
16,378
|
29,123
|
31,472
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
$65,716
|
$61,633
|
$77,997
|
$127,349
|
$151,703
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share (basic) |
$0.27
|
$0.25
|
$0.32
|
$0.53
|
$0.61
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of shares used in computing earnings per share (basic) |
240,982
|
243,740
|
245,398
|
242,349
|
246,674
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings per share (diluted) |
$0.27
|
$0.25
|
$0.31
|
$0.52
|
$0.60
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of shares used in computing earnings per share (diluted) |
240,951
|
245,698
|
252,179
|
|
254,165
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHECK POINT SOFTWARE TECHNOLOGIES
LTD.
RECONCILIATION OF SUPPLEMENTAL FINANCIAL INFORMATION |
|||||||||
|
(In thousands, except per share amounts)
|
|||||||||
|
Three Months Ended
|
Six Months Ended | ||||||||
| June 30, | June 30, | June 30,
|
|||||||
| 2006 |
2006
|
2005 | 2006 | 2005 | |||||
|
|
|
|
|
|
|
|
|
|
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||
| GAAP Net income | $65,716 | $61,633 | $77,997 | $127,349 | $151,703 | ||||
|
Stock-based compensation 1 |
9,315 | 11,600 | 942 | 20,915 | 2,156 | ||||
|
Amortization of intangible assets and acquisition related expenses 2 |
963 | 1,890 | 869 | 2,853 | 1,739 | ||||
|
|
|
|
|
|
|
|
|
|
| Non-GAAP Net income | $75,994 | $75,123 | $79,808 | $151,117 | $155,598 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Earnings per share (diluted) |
$0.32 | $0.31 | $0.32 | $0.62 | $0.61 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of shares used in computing Non-GAAP earnings per share (diluted) |
240,951
|
245,698
|
252,179
|
243,325
|
254,165
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1 Stock-based compensation: | |||||||||
|
Cost of revenues |
$59
|
$110
|
$81
|
$169
|
$165
|
||||
|
Research and |
2,968
|
3,549
|
331
|
6,517
|
702
|
||||
|
Selling and marketing |
2,197
|
2,619
|
480
|
4,816
|
1,139
|
||||
|
General and |
4,091
|
5,322
|
50
|
9,413
|
150
|
||||
|
|
|
|
|
|
|
|
|
|
|
Total |
$9,315
|
$11,600
|
$942
|
$20,915
|
$2,156
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2 Amortization of intangible assets and acquisition related expenses: | |||||||||
|
Cost of revenues |
$1,354
|
$1,354
|
$1,354
|
$2,708
|
$2,708
|
||||
|
Selling and marketing |
151
|
151
|
57
|
302
|
114
|
||||
|
General and |
-
|
927
|
-
|
927
|
-
|
||||
|
Taxes on income |
(542)
|
(542)
|
(542)
|
(1,084)
|
(1,083)
|
||||
|
|
|
|
|
|
|
|
|
|
|
Total |
$963
|
$1,890
|
$869
|
$2,853
|
$1,739
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHECK POINT SOFTWARE TECHNOLOGIES
LTD.
SELECTED CONSOLIDATED BALANCE SHEET DATA |
|||
|
(In thousands)
ASSETS |
|||
|
June 30,
2006 |
December 31,
2005 |
||
|
|
|
|
|
(unaudited)
|
|||
| Current assets: | |||
|
Cash and cash equivalents
|
$223,055
|
$298,531
|
|
| Marketable securities and deposits |
953,732
|
1,044,312
|
|
|
Trade receivables, net
|
83,979
|
127,129
|
|
|
Other receivables and prepaid expenses
|
20,888
|
20,646
|
|
|
|
|
|
|
Total current assets
|
1,281,654
|
1,490,618
|
|
|
|
|
|
| Long-term assets: | |||
|
Long-term investments |
549,280
|
382,500
|
|
|
Property and equipment, net |
44,930
|
7,665
|
|
|
Intangible assets, net |
17,206
|
20,215
|
|
|
Goodwill |
174,295
|
174,295
|
|
|
Deferred income taxes, net |
7,957
|
8,694
|
|
|
Other assets |
924
|
875
|
|
|
|
|
|
|
Total long-term assets |
794,592
|
594,244
|
|
|
|
|
|
| Total assets |
$2,076,246
|
$2,084,862
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|||
| Current liabilities: | |||
|
Deferred revenues
|
$176,542
|
$168,998
|
|
|
Trade payables and other accrued liabilities
|
134,868
|
136,872
|
|
|
|
|
|
|
Total current liabilities
|
311,410
|
305,870
|
|
|
|
|
|
| Accrued severance pay, net | 3,864 | 3,271 | |
|
|
|
|
| Total liabilities | 315,274 | 309,141 | |
|
|
|
|
| Shareholders' equity: | |||
|
Share capital
|
774
|
774
|
|
|
Additional paid-in capital
|
407,872
|
386,529
|
|
| Deferred stock-based compensation | - | (2,831) | |
| Treasury shares at cost | (508,918) | (380,834) | |
| Accumulated other comprehensive loss | (13,506) | (8,952) | |
|
Retained earnings
|
1,874,750
|
1,781,035
|
|
|
|
|
|
|
Total shareholders' equity
|
1,760,972
|
1,775,721
|
|
|
|
|
|
| Total liabilities and shareholders' equity |
$2,076,246
|
$2,084,862
|
|
|
|
|
|
|
|
|
|
| Total cash and cash equivalents, deposits and marketable securities | 1,726,067 | 1,725,343 | |
|
|
|
|
|
CHECK POINT SOFTWARE TECHNOLOGIES
LTD.
SELECTED CONSOLIDATED CASH FLOW DATA |
|||||||
|
(In thousands)
|
|||||||
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||
|
2006
|
2005
|
2006
|
2005
|
||||
|
|
|
|
|
|
|
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
||||
| Cash flow from operating activities: | |||||||
| Net income |
$65,716
|
$77,997
|
$127,349
|
$151,703
|
|||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
|
Depreciation and amortization |
1,334
|
1,320
|
2,745
|
2,625
|
|||
|
Decrease (increase) in trade and other receivables, net |
13,416
|
(9,803)
|
42,884
|
3,686
|
|||
|
Increase (decrease) in trade payables and other accrued liabilities |
(2,923)
|
8,662
|
6,133
|
13,256
|
|||
|
Amortization of intangible assets |
1,505 | 1,411 | 3,010 | 2,822 | |||
|
Stock-based compensation |
9,315
|
942
|
20,915
|
2,156
|
|||
|
Tax benefit related to exercise of stock options |
-
|
2,883
|
-
|
4,383
|
|||
|
Other adjustments |
(1,193) | 1,490 | (3,842) | 1,331 | |||
|
|
|
|
|
|
|
|
| Net cash provided by operating activities |
87,170
|
84,902
|
199,194
|
181,962
|
|||
|
|
|
|
|
|
|
|
| Cash flow from investing activities: | |||||||
| Investment in property and equipment | (38,837) | (1,038) | (40,010) | (2,180) | |||
|
|
|
|
|
|
|
|
| Net cash used in investing activities | (38,837) | (1,038) | (40,010) | (2,180) | |||
|
|
|
|
|
|
|
|
| Cash flow from financing activities: | |||||||
|
Proceeds from issuance of shares upon exercise of options |
23,040
|
13,355
|
40,448
|
20,097
|
|||
|
Purchase of treasury shares |
(138,433)
|
(102,565)
|
(202,358)
|
(152,271)
|
|||
|
Tax benefit related to exercise of stock options |
2,200 | - | 3,450 | - | |||
|
|
|
|
|
|
|
|
| Net cash used in financing activities |
(113,193)
|
(89,210)
|
(158,460)
|
(132,174)
|
|||
|
|
|
|
|
|
|
|
| Increase (decrease) in cash and cash equivalents, deposits and marketable securities |
(64,860)
|
(5,346)
|
724
|
47,608
|
|||
|
|
|
|
|
|
|
|
| Cash and cash equivalents, deposits and marketable securities at the beginning of the period |
1,790,927
|
1,630,245
|
1,725,343
|
1,577,291
|
|||
|
|
|
|
|
|
|
|
| Cash and cash equivalents, deposits and marketable securities at the end of the period |
1,726,067
|
1,624,899
|
1,726,067
|
1,624,899
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|