Check Point Beats on Q2 Earnings, Revenues; Shares Jump

Zacks

Shares of Check Point Software Technologies Ltd. (CHKP) were up 2.13% on Wednesday’s trade after the company’s second-quarter top and bottom lines not only beat the Zacks Consensus Estimate but were also up year over year.

Revenues

Check Point’s second-quarter revenues of $362.6 million increased 6.6% from the year-ago quarter and also came marginally ahead of the Zacks Consensus Estimate of $360.0 million. Reported revenues came in at the higher end of management’s guided range of $340.0 to $375.0 million.

The year-over-year revenue growth was aided by 9.6% increase in revenues from Products & Software Blades and 3.5% improvement in Software Updates and maintenance revenues. The company reported 21.8% year-over-year growth in revenues from Software Blades subscription.

Check Point witnessed higher adoption of its Application Control, Anti-Bot and URL Filtering blades coupled with higher demand for its data center and high-end appliances. Another factor that contributed to the overall growth scenario was the increasing number of large deal signings. During the quarter, Check Point witnessed 35.0% year-over-year increase in customers who signed deals worth $1.0 million or more.    

Geographically, the Americas contributed 49.0% of the total revenue while 35.0% was derived from Europe. The remaining 16.0% was contributed by Asia Pacific, Japan, Middle East and Africa region.

Operating Results

On a year-over-year basis, adjusted gross profit (including stock-based compensation but excluding amortization of intangible assets) increased 6.8% to $321.6 million, while margins came in at 88.7% compared with 88.5% reported in the year-ago quarter.

Adjusted operating expenses (including stock-based compensation but excluding amortization of intangible assets) increased 12.2% year over year to $131.2 million as the company continued to invest in the business and hire for research and development, sales and marketing and technological support. As a percentage of revenues, it increased 180 basis points (bps).

Adjusted operating income (including stock-based compensation but excluding amortization of intangible assets) came in at $149.4 million, up 3.2% year over year. However, margins contracted 135 bps primarily due to higher expenses.

Adjusted net income (including stock-based compensation but excluding amortization of intangible assets calculated on a proportionate tax basis) was $160.0 million or 82 cents, up from $151.8 million or 76 cents reported in the comparable quarter last year.

Balance Sheet & Cash Flow

Check Point exited the quarter with cash, cash equivalents and marketable securities of approximately $1.23 billion compared with $1.21 billion in the previous quarter. Cash flow from operations was $167.9 million compared with $172.1 million in the previous quarter. During the quarter, Check Point repurchased 3.0 million shares for $194 million.

Third-Quarter Outlook

Check Point expects its revenues in the range of $355.0 to $375.0 million, in line with the Zacks Consensus Estimate of $365 million at the mid-point. The company also expects non-GAAP earnings per share to be between 88 cents and 92 cents, while the Zacks Consensus Estimate is pegged at 82 cents.

Our Take

Check Point delivered better-than-expected second-quarter results. The company also reported modest third-quarter revenue guidance.  

Nonetheless, the rapid adoption of Check Point’s data center appliances and the continuous enhancements in data center product lines are expected to provide adequate support to revenue growth.

Moreover, Check Point’s settlement with the Israeli Tax Authorities is a long-term positive. The company’s continuous share buybacks also bode well with the investors.

However, stiff competition from Cisco Systems Inc. (CSCO), Juniper Networks Inc. (JNPR) and Fortinet Inc. (FTNT); an uncertain economic environment, competitive pressures, currency headwinds and Check Point’s significant European exposure are the concerns.

Currently, Check Point carries a Zacks Rank #3 (Hold).

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