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Check Point (CHKP) Q3 Earnings Top, Revenues Meet Estimates

Zacks Equity Research

Check Point Software Technologies Ltd. CHKP reported third-quarter 2019 results, wherein the bottom line beat and the top line matched the Zacks Consensus Estimate.

The company’s non-GAAP earnings per share of $1.44 beat the consensus estimate of $1.40. The figure matched the top-end of the company’s guidance of $1.36-$1.44 and climbed 4.3% year over year, driven mainly by higher revenues and lower share count.

Revenues were $491 million, up 4% year over year. The figure came within the company’s guidance of $480-$500 million.

Growth in security subscriptions revenues, including advanced threat prevention and CloudGuard suite of products boosted the top line. This was driven by increased adoption of Check Point’s cloud solutions.

Check Point Software Technologies Ltd. Price, Consensus and EPS Surprise

Check Point Software Technologies Ltd. Price, Consensus and EPS Surprise

Check Point Software Technologies Ltd. price-consensus-eps-surprise-chart | Check Point Software Technologies Ltd. Quote

Quarter Details

Security subscription revenues were $154 million, increasing 13% year over year, driven by strong demand for its next generation threat extraction and protection, CloudGuard and Infinity solutions, and SandBlast zero-day advanced threat prevention technologies. However, revenues of $118.3 million from Products and licenses fell 2.3%.

Total revenues from product and security subscriptions totaled $272 million, growing 6% year over year.

Software updates and maintenance revenues increased to $219 million, up 3%.

As of Sep 30, 2019, deferred revenues were $1.24 billion, up 8% year over year, reflecting strength in security subscription and support.

Region wise, the Americas generated 46% of total revenues; Europe, Middle East and Africa accounted for 42% and the Asia Pacific accounted for 12%.

During the quarter, the company focused on IT modernization. The cloud business grew significantly. Also, the Maestro Orchestrator witnessed solid traction.

Check Point added CloudGuard Connect and CloudGuard Edge solutions to its portfolio of cloud offerings.

Notably, a potential customer, while testing the CloudGuard product, successfully detected and prevented a command-and-control malware that could have leaked confidential information.

The company continued to witness strong traction of its high-end 16000 and 26000 security appliances, which are optimized for Gen 5 security operations. It also launched the 1500 series of appliances, which delivers between 456 and 660 megabits of threat prevention performance.

The North America region witnessed a healthy growth rate. Check Point also significantly increased its marketing activities in the region during the quarter. Moreover, management is optimistic about its new high-level appointment of a new president for the region, Chris Scanlan.

Operating Results

Non-GAAP operating income for the quarter came in at $246 million, falling 1.6% year over year. Non-GAAP operating margin contracted 310 basis points to 50%, as a result of increased investments in sales and marketing efforts by the company.

Non-GAAP net income for the quarter was $216.7 million, down from $219.3 million in the year-earlier quarter.

Balance Sheet & Other Financial Details

Check Point exited the third quarter with cash and cash equivalents, marketable securities and short-term deposits of $4.1 million compared with $1.6 billion in the previous quarter.

The company generated cash worth $244 million from operational activities, up from $233 million in the second quarter.

It repurchased approximately 2.9 million shares for about $323 million in the third quarter.

Outlook

The company intends to continue shifting its revenues from products to subscriptions and Infinity.

Furthermore, for the fourth quarter, revenues are expected to be between $527 million and $557 million, and non-GAAP earnings in the $1.93-$2.04 range. Tax rate for the fourth quarter is expected to be around 0%.

Zacks Rank and Key Picks

Check Point currently has a Zacks Rank #3 (Hold).

A few of better-ranked stocks in the broader technology sector are Five9, Inc. FIVN, Sogou Inc. SOGO and Benefitfocus, Inc. BNFT, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Five9, Sogou and Benefitfocus is 10%, 20.20% and 20%, respectively.

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