Check Point Software Technologies Ltd.
) exited second quarter 2012 with adjusted earnings of 71 cents per
share, missing the Zacks Consensus Estimate by a penny. The
adjusted earnings per share exclude one-time items, but include
stock-based compensation expense. Check Point received healthy
subscription from the increased adoption of annuity software
blades. Shares closed at $48.75, up 6.86% from the previous day's
price. The share price appreciation indicates a decent quarter as
well as the expanded share repurchase program announced.
CHECK PT SOFTW (CHKP): Free Stock Analysis
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Check Point reported revenue of $328.6 million in the second
quarter, up 9.3% from $300.6 million in the year-ago period. The
quarter's result was at the lower end of company's guidance range
of $324.0-$336.0 million and was below the Zacks Consensus Estimate
of $332.0 million. The year-over-year improvement can be attributed
to a 3.2% growth in Product and Licenses revenue. Moreover, Check
Point witnessed a total 13.3% year-over-year growth in its Software
Updates, Maintenance and Services revenues.
Geographic contributions also remained stable with Americas
contributing 44% of revenues, Europe 39%, and Asia-Pacific and
Japan, Middle East and Africa region contributing the remaining
17%. Nevertheless, the quarter was a bit affected by currency
Overall, revenue improvement was driven by the growing demand for
Check Point's network security appliances and annuity software
blades, as well as new product launches. Management also reported
strong performance in terms of the number of large deals, which
doubled from the year-ago quarter.
Reported gross profit increased 12.6% year over year to $290.7
million. Gross margin increased 260 basis points from the year-ago
quarter to 88.5%. Cost control measures led to improved margin
Operating income came in at $180.5 million, up 20.3% year over
year. Operating margin increased 500 basis points year over year to
54.9%. The improvement in operating results was driven by strong
revenue growth that offset the 1.9% rise in operating expenses.
Cost control was evident from the year-over-year drop in research
and development (R&D) expenses.
The quarter's GAAP net income was $150.0 million or 71 cents per
share, up from $128.0 million or 60 cents in the comparable quarter
last year. Excluding special items but including stock-based
compensation expense, non-GAAP net income was $151.0 million or 71
cents a share compared with $137.0 million or 64 cents in the
year-earlier quarter. Apart from cost control measures, strength in
dollar value also supported the profit boost.
Balance Sheet & Cash Flow
Check Point exited the quarter with cash, cash equivalents and
marketable securities of approximately $1.37 billion, down from
$1.40 billion in the prior quarter. Trade receivables were $249.2
million. Cash flow from operations was $157.5 million, down from
$275.3 million in the previous quarter. Capital expenditure
decreased to $1.28 million from $2.42 million in the prior quarter.
Enhanced Share Repurchase Program
During the quarter, Check Point repurchased 1.4 million shares for
a total consideration of $75.0 million. Also, the company received
approval from the board of directors to expand the current
authorization up to $1.0 billion. Under the expanded plan, Check
Point will be allowed to repurchase the outstanding common shares
during the next two years.
Currently, Check Point has roughly 204.8 million shares of common
Third Quarter Outlook
Management sees revenue in a range of $316.0 million to $345.0
million, and earnings (excluding one-time items) in the range of 74
cents to 81 cents per share. The Zacks Consensus Estimates for the
third quarter and fiscal 2012 are pegged at 74 cents and $3.01 per
share, respectively. GAAP earnings per share would be 7 cents less
than the non-GAAP figure.
Concurrent with third quarter outlook, Check Point cautioned that
the quarter could be somewhat challenging due to the persisting
economic backdrop. But at the same time, the company assures that
it is ready to face the challenges with renewed strength buoyed by
new product launches and increase in market share. This justifies
such wide revenue and earnings per share projections.
Check Point delivered an impressive second quarter in terms of
year-over-year comps, but missed the Zacks Consensus Estimates both
in terms of top and bottom lines. We think that investor sentiment
will be in Check Point's favor as shareholders remain encouraged by
its market share gains from the tech giant
Cisco Systems Inc.
Juniper Networks Inc.
). Check Point continues to benefit from strength at the high end
of the market and increased demand for its blade solutions.
Moreover, the company's continuous product launches are
Also, the enhanced share buyback back program reflects a sound cash
position as well as favorable earnings growth potential, which
could delight investor sentiment.
However, limited margin expansion potential (over dependence on
indirect sales model), uncertain economic environment competitive
pressures, currency headwinds and Check Point's significant
European exposure are concerns.
Currently, Check Point has a Zacks #3 Rank, implying a short-term