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Check Point Software Technologies Reports 2014 Second Quarter Financial Results

Check Point® Software Technologies Ltd. (NASDAQ:CHKP), the worldwide leader in securing the Internet, today announced its financial results for the second quarter ending June 30, 2014.

  • Total Revenue: $363 million, representing a 7 percent increase year over year
  • Non-GAAP Operating Income: $207 million, representing 57 percent of revenues
  • Non-GAAP EPS: $0.89, representing an 8 percent increase year over year
  • Deferred Revenues: $660 million, representing a 14 percent increase year over year

“We had a fantastic second quarter. Total revenues from products and software blades subscription delivered 10 percent growth, which was driven by strong demand across industries and business segments. We saw a nice up-tick in customer wins across the board with several very large customer contracts,” said Gil Shwed, founder, chairman, and chief executive officer of Check Point Software Technologies.

Financial Highlights for the Second Quarter of 2014:

  • Total Revenue: $363 million compared to $340 million in the second quarter of 2013.
  • GAAP Operating Income: $190 million compared to $183 million in the second quarter of 2013.
  • Non-GAAP Operating Income: $207 million compared to $198 million in the second quarter of 2013. Non-GAAP operating margin was 57 percent, compared to 58 percent in the second quarter of 2013.
  • GAAP Net Income and Earnings per Diluted Share: GAAP net income was $160 million compared to $151 million in the second quarter of 2013. GAAP earnings per diluted share were $0.83 compared to $0.76 in the second quarter of 2013.
  • Non-GAAP Net Income and Earnings per Diluted Share: Non-GAAP net income was $172 million compared to $165 million in the second quarter of 2013. Non-GAAP earnings per diluted share were $0.89 compared to $0.83 in the second quarter of 2013.
  • Deferred Revenues: As of June 30, 2014, deferred revenues were $660 million compared to $580 million as of June 30, 2013.
  • Cash Flow: Cash flow from operations was $168 million compared to $205 million in the second quarter of 2013.
  • Share Repurchase Program: During the second quarter of 2014, the company repurchased 3.0 million shares at a total cost of $194 million.
  • Cash Balances, Marketable Securities and Short Term Deposits: $3,643 million as of June 30, 2014, an increase of $72 million, compared to $3,571 million as of June 30, 2013.

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

During the second quarter of 2014, Check Point launched new products and services, including:

41000 Security System – New datacenter and telco grade high performance system based on the multi-blade hardware architecture of the 61000. The 41000 has a smaller footprint, enabling more customers to deploy high performance scalable security. The 41000 delivers performance of up to 11,000 SecurityPower™ units (SPU), 40 Gbps of real-life firewall throughput, and 25 Gbps of real-life IPS throughput.

Smart-1 Appliance Family – Upgraded the entire line of the Smart-1 security management appliance family with five new appliances that deliver cyber security management for the era of big data. Smart-1 appliances enable organizations to consolidate security policy, log, and event management. The new Smart-1 Appliances allow for three times more effective storage capacity and report generation is greatly accelerated.

Next-Generation SmartEvent – Announced the availability of Next-Generation SmartEvent, a new and powerful event monitoring solution for real-time processing and storing of threat detection data. Next-Generation SmartEvent offers one single view for all security threats and network components, to more easily manage and analyze big data security, and to make faster and more informed security decisions.

ThreatCloud IntelliStore – The ThreatCloud IntelliStore provides a threat intelligence marketplace that enables organizations to select from a wide range of threat intelligence feeds relevant to them and simultaneously uses this intelligence to proactively stop threats at their Check Point Security Gateways.

Check Point 2014 Security Report – We published our annual industry security report which provides insight into the major security events that occurred in organizations across the world and offers recommendations on how to protect against them. The report is based on collaborative research from our Security Checkup assessments, Threat Emulation sensors, ThreatCloud™ and Endpoint Security reports, and includes in-depth analysis of 200,000+ hours of monitored network traffic from over 9,000 security gateways across 996 organizations of various industries worldwide. The report is available at http://www.checkpoint.com/securityreport.

Industry Accolades:

Leader in the Gartner Magic Quadrant for Enterprise Network Firewall - Check Point is positioned as a Leader in the Gartner Magic Quadrant for Enterprise Network Firewall. The company has been in the Leaders quadrant since 1999.

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 Q1 2014, according to the IDC Worldwide Quarterly Security Appliance Tracker Q1 2014.

“We’ve continued to innovate and expand our offerings this quarter with the introduction of our ThreatCloud IntelliStore, which provides customers access to the industry’s best cyber intelligence sources and translates it into real-time prevention. This is the latest layer in our Threat Prevention solution that includes our Intrusion Prevention (IPS), Network Anti-Virus, Web Security, Anti-bot and Threat Emulation,” concluded Shwed.

Third Quarter 2014 Investor Conference Participation Schedule:

  • Needham 2014 Software and Services Conference
    August 5, 2014 – New York, NY
  • Pacific Crest 16th Annual Global Technology Leadership Forum
    August 12, 2014 – Vail, CO
  • Citi 2014 Technology Conference
    September 2, 2014 – New York, NY
  • Deutsche Bank 2014 dbAccess Technology Conference
    September 9, 2014 – Las Vegas, NV

Members of Check Point's management team will 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 23, 2014 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 1, 2014 on the company's website or by telephone at +1.201.612.7415, replay ID number 13586646.

About Check Point Software Technologies Ltd.

Check Point Software Technologies Ltd. (www.checkpoint.com), the worldwide leader in securing the Internet, is the only vendor to deliver Total Security for networks, data and endpoints, unified under a single management framework. Check Point provides customers with uncompromised protection against all types of threats, reduces security complexity and lowers total cost of ownership. Check Point first pioneered the industry with FireWall-1 and its patented stateful inspection technology. Today, Check Point continues to innovate with the development of the Software Blade Architecture™. The dynamic Software Blade Architecture delivers secure, flexible and simple solutions that can be fully customized to meet the exact security needs of any organization or environment. Check Point customers include tens of thousands of businesses and organizations of all sizes including all Fortune 100 companies. Check Point's award-winning ZoneAlarm solutions protect millions of consumers from hackers, spyware and identity theft.

©2014 Check Point Software Technologies Ltd. All rights reserved

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 for software-defined protection, Next-Generation SmartEvent and our other new solutions, and our expectations regarding our collaboration with VMware to automate and simplify the provisioning and deployment of network security in private clouds. Our expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results 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 March 28, 2014. 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 share, which are adjustments from results based on GAAP to exclude stock-based compensation charges, amortization of intangible assets and the related tax affects. 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,
2014   2013 2014   2013
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Products and licenses $124,342 $119,252 $232,281 $224,445
Software Blades subscriptions 63,743 52,350 125,500 101,504
Total revenues from products and software blades

188,085

171,602

357,781

325,949

Software updates and maintenance 174,513 168,570 347,023 336,953
Total revenues 362,598 340,172 704,804 662,902
 
Operating expenses:
Cost of products and licenses 22,353 20,916 42,413 39,765
Cost of software blades subscriptions

1,092

1,240

2,602

2,846

Total cost of products and software blades

23,445

22,156

45,015

42,611

Cost of Software updates and maintenance

17,506

16,959

34,754

33,207

Amortization of technology 60 198 120 492
Total cost of revenues 41,011 39,313 79,889 76,310
 
Research and development 33,451 29,369 66,417 58,683
Selling and marketing 79,821 70,481 148,435 132,310
General and administrative 18,394 17,719 35,644 35,305
Total operating expenses 172,677 156,882 330,385 302,608
 
Operating income 189,921 183,290 374,419 360,294
Financial income, net 7,298 7,608 14,447 16,450
Income before taxes on income 197,219 190,898 388,866 376,744
Taxes on income 37,563 39,890 76,125 77,776
Net income $159,656 $151,008 $312,741 $298,968

Earnings per share (basic)

$0.84

$0.77

$1.64

$1.51

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

 

189,933

 

196,387

 

190,972

 

197,418

Earnings per share (diluted)

$0.83

$0.76

$1.61

$1.49

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

 

193,380

 

199,946

 

194,566

 

201,265

 
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,

 

2014   2013 2014   2013
(unaudited) (unaudited) (unaudited) (unaudited)
 
GAAP operating income $189,921 $183,290 $374,419 $360,294
Stock-based compensation (1) 16,587 13,752 29,058 24,922
Amortization of intangible assets (2) 535   826   1,070   1,748  
Non-GAAP operating income $207,043   $197,868   $404,547   $386,964  
 
GAAP net income $159,656 $151,008 $312,741 $298,968
Stock-based compensation (1) 16,587 13,752 29,058 24,922
Amortization of intangible assets (2) 535 826 1,070 1,748
Taxes on the above items (3) (4,679 ) (551 ) (6,868 ) (1,311 )
Non-GAAP net income $172,099   $165,035   $336,001   $324,327  
 
GAAP Earnings per share (diluted) $0.83 $0.76 $1.61 $1.49
Stock-based compensation (1) 0.08 0.07 0.15 0.12
Amortization of intangible assets (2) - 0.01 0.01 0.01
Taxes on the above items (3) (0.02 ) (0.01 ) (0.04 ) (0.01 )
Non-GAAP Earnings per share (diluted) $0.89   $0.83   $1.73   $1.61  
 
Number of shares used in computing Non-GAAP earnings per share (diluted) 193,380   199,946   194,566   201,265  
 
(1) Stock-based compensation:
Cost of products and licenses $22 $23 $38 $41
Cost of software updates and maintenance 240 249 425 448
Research and development 2,661 2,802 4,754 4,789
Selling and marketing 3,874 3,312 6,202 5,572
General and administrative 9,790   7,366   17,639   14,072  
$16,587   $13,752   $29,058   $24,922  
 
(2) Amortization of intangible assets:
Amortization of technology-cost of revenues 60 198 120 492
Selling and marketing 475   628   950   1,256  
$535   $826   $1,070   $1,748  

(3) Taxes on the above items

$ (4,679 ) $ (551 ) $ (6,868 ) $ (1,311 )

Total, net

$12,443   $14,027   $23,260   $25,359  
 
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEET DATA
 

(In thousands)

 
ASSETS
 
  June 30,   December 31,
2014 2013
(unaudited) (audited)
Current assets:
Cash and cash equivalents $317,544 $408,432
Marketable securities and short-term deposits 915,977 758,382
Trade receivables, net 245,432 379,648
Prepaid expenses and other current assets 59,907   53,856  
Total current assets 1,538,860   1,600,318  
 
Long-term assets:
Marketable securities 2,409,263 2,463,110
Property and equipment, net 38,083 37,991
Severance pay fund 6,479 6,488
Deferred tax asset, net 16,476 13,557
Other intangible assets, net 15,120 16,191
Goodwill 727,875 727,875
Other assets 19,865   20,907  
Total long-term assets 3,233,161   3,286,119  
 
Total assets 4,772,021   $4,886,437  
 
LIABILITIES AND
SHAREHOLDERS’ EQUITY
Current liabilities:
Deferred revenues $565,188 $586,696
Trade payables and other accrued liabilities 251,228   396,102  
Total current liabilities 816,416   982,798  
 
Long-term liabilities:
Long-term deferred revenues 94,958 84,927
Income tax accrual 227,028 205,420
Deferred tax liability, net 636 308
Accrued severance pay 11,071   10,887  
333,693   301,542  
 
Total liabilities 1,150,109   1,284,340  
 
Shareholders’ equity:
Share capital 774 774
Additional paid-in capital 811,711 774,917
Treasury shares at cost (2,757,415 ) (2,421,278 )
Accumulated other comprehensive income 8,256 1,839
Retained earnings 5,558,586   5,245,845  
Total shareholders’ equity 3,621,912   3,602,097  

Total liabilities and shareholders’ equity

$4,772,021

 

$4,886,437

 
Total cash and cash equivalents, marketable securities and short-term deposits

$3,642,784

 

$3,629,924

 
 
CHECK POINT SOFTWARE TECHNOLOGIES LTD.
SELECTED CONSOLIDATED CASH FLOW DATA
 

(In thousands)

 
  Three Months Ended   Six Months Ended
June 30, June 30,
2014   2013   2014   2013
(unaudited) (unaudited) (unaudited) (unaudited)
Cash flow from operating activities:
Net income $159,656 $151,008 $312,741 $298,968
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment

2,248

2,081

4,439 4,097
Amortization of intangible assets 535 826 1,070 1,748
Stock-based compensation 16,587 13,752 29,058 24,922
Realized gain on marketable securities (143 ) 40 (154 ) (1,074 )
Decrease (increase) in trade and other receivables, net (15,128 ) 10,875 130,015 105,251
Increase (decrease) in deferred revenues, trade payables and other accrued liabilities

11,594

29,065

(129,500 ) 112,561
Excess tax benefit from stock-based compensation (2,674 ) (1,934 ) (1,952 ) (6,105 )
Deferred income taxes, net (4,703 ) (1,054 ) (5,687 ) (4,267 )
Net cash provided by operating activities 167,972   204,659   340,030   536,101  
 
Cash flow from investing activities:
 
Investment in property and equipment (2,328 ) (2,044 ) (4,531 ) (4,626 )
Net cash used in investing activities (2,328 ) (2,044 ) (4,531 ) (4,626 )
 
Cash flow from financing activities:
Proceeds from issuance of shares upon exercise of options

-

6,785

47,418

33,430

Purchase of treasury shares (194,000 ) (142,797 ) (380,869 ) (274,434 )
Excess tax benefit from stock-based compensation 2,674   1,934   1,952   6,105  
Net cash used in financing activities (191,326 ) (134,078 ) (331,499 ) (234,899 )
 
Unrealized gain (loss) on marketable securities, net 6,272   (21,276 ) 8,860   (21,288 )
 
Increase in cash and cash equivalents, marketable securities and short term deposits

(19,410

)

47,261

12,860

275,288

 
Cash and cash equivalents, marketable securities and short term deposits at the beginning of the period

3,662,194

 

3,523,391

 

3,629,924

 

3,295,364

 
 
Cash and cash equivalents, marketable securities and short term deposits at the end of the period

$3,642,784

 

$3,570,652

 

$3,642,784

 

 

$3,570,652

 

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