Outlook Series | Check Point Q2 '08: EPS Up 8%

Check Point Q2 '08: EPS Up 8% - In Line

July 23, 2008

Check Point Software reported financial results for the second quarter ended June 30, 2008.

In line with Wall Street expectations, Check Point realized net income of $79.2 million, or 36 cents a share, in the second quarter, compared with $69.5 million, or 31 cents a share, a year earlier.

Excluding items such as acquisition-related charges and equity-based compensation expenses, Check Point recorded an 8 percent rise in profit at $92.7 million, or 43 cents a share.

Quarterly revenues rose 13 percent to $199.6 million.

The results were at the top of Check Point's own estimate of earnings per share of 33 to 37 cents -- or 40 to 44 cents excluding one-time items -- with revenues of $190-$200 million.

“Check Point’s success during the quarter is a direct result of effectively executing our Total Security strategy,” said Gil Shwed, chairman and chief executive officer at Check Point. “We have continued to experience strength across our business which is reflected in the double-digit year over year growth in revenue, earnings per share and deferred revenue.”

Financial Highlights for the Second Quarter of 2008:

Total Revenues: $199.6 million, an increase of 13 percent, compared to $176.2 million in the second quarter of 2007. Product and license revenue was $85.0 million, an increase of 16 percent, compared to $73.3 million in the second quarter of 2007.
Net Income – GAAP: $79.2 million, an increase of 14 percent, compared to $69.5 million in the second quarter of 2007. Net income in the second quarter of 2008 includes acquisition-related charges of $8.9 million and equity-based compensation expenses of $8.4 million. Net of taxes, these charges totaled $13.5 million. Net income in the second quarter of 2007 included acquisition-related charges of $10.3 million and equity-based compensation expenses of $8.6 million. Net of taxes these charges totaled $16.2 million.
Net Income – Non-GAAP:¹ $92.7 million, an increase of 8 percent, compared to $85.7 million in the second quarter of 2007. Non-GAAP net income excludes equity-based compensation expenses and acquisition-related charges.
Earnings per Diluted Share – GAAP: $0.36, an increase of 18 percent, compared to $0.31 in the second quarter of 2007. GAAP earnings per diluted share for the second quarter of 2008 included equity-based compensation expenses of $0.04 and acquisition-related charges of $0.05. Net of taxes, these charges totaled $0.07. GAAP earnings per diluted share for the second quarter of 2007 included acquisition-related charges of $0.05 and equity-based compensation expenses of $0.03. Net of taxes these charges totaled $0.07.
Earnings per Diluted Share – Non-GAAP: $0.43, an increase of 12 percent, compared to $0.38 in the second quarter of 2007. Non-GAAP earnings per diluted share exclude equity-based compensation expenses and acquisition-related charges.
Deferred Revenues: As of June 30, 2008, we had deferred revenue of $279.2 million, a $43 million or 18% increase compared to deferred revenues as of June 30, 2007.
Cash Flow: $82.6 million in cash flow from operations and we had $1.34 billion in cash and investments as of June 30, 2008.
Share Repurchase Program: During the second quarter of 2008, Check Point repurchased 2.1 million shares at an approximate cost of $50.0 million.

Gil Shwed, chairman and chief executive officer at Check Point. said "Since April we have expanded and continued to improve the performance of our unified line of security gateways. We introduced the Power-1 appliances, a new line of high-performance security gateways delivering excellent performance of up to 14 Gbps and record price performance at less than $4 per Mbps. In addition, we added five new UTM-1 Total Security appliances, expanded the range of solutions from a sub-five thousand dollar model and up to 4.5 Gbps performance providing our customers with more choices when selecting network security appliances. The new appliances further compliment our Open Choice program which allows customers to choose from a variety of gateway security platforms, including Check Point Power-1 and UTM-1 branded appliances, software on open servers and Check Point software integrated on partner appliances.

We continued to address the growing security needs of our customers utilizing Apple’s Mac OS X and iPhone with the release of Check Point Full Disk Encryption (FDE) for the Mac and VPN-1 support for the iPhone. Our FDE for Mac is the only enterprise full-disk encryption solution with pre-boot authentication available in the market today.

During the second quarter we also received awards from third-party industry organizations including: “Best Enterprise Firewall” from SC Magazine for Check Point VPN-1 Power, “Endpoint Security Product of the Year” from Techworld for Check Point Endpoint Security, “VB100 Award” from Virus Bulletin for ZoneAlarm Internet Security and “Ten Best Web Support Sites” for 2008 from Association of Support Professionals

Mr. Shwed concluded, “I am pleased with our results for the quarter as we have now exceeded our plans for the sixth quarter in a row. During that time we have also expanded and executed our strategy of delivering a comprehensive integrated security solution that includes a unified line of security gateways, a single-agent for endpoint security and a single security management console.”