Check Point Software Technologies Ltd.
(
CHKP
) exited first quarter 2012 with flying colors. Adjusted earnings
of 69 cents per share marginally surpassed the Zacks Consensus
Estimate of 68 cents. The adjusted earnings per share exclude
one-time items, but include stock-based compensation expense. Check
Point witnessed strong network security product sales across all
geographical regions.
Shares closed at $60.76, down 5.14% from the previous day's
price. Despite a modest beat, the share price deceleration
indicates investors' unhappiness about a weak revenue and earnings
guidance for the upcoming quarter. Investor sentiments were also
hurt by the company's decision to leave the fiscal outlook
unchanged.
Revenue
Check Point reported revenue of $313.1 million in the first
quarter, up 11.3% from $281.3 million in the year-ago period. The
quarter's result was at the higher end of company's guidance range
of $305.0-$315.0 million and was roughly in line with the Zacks
Consensus Estimate of $313.0 million. The improvement can be
attributed to a 4.7% year-over-year growth in Product and Licenses
revenue. Moreover, Check Point witnessed a total 15.3%
year-over-year growth in its Software Updates, Maintenance and
Services revenues.
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. The growth in demand was
largely due to a general customer pattern of upgrading security
levels. Management also reported strong performance regarding the
number of large deals, which doubled from the year-ago quarter.
Operating Results
Reported gross profit increased 3.7% year over year to $274.6
million. Gross margin increased 180 basis points from the year-ago
quarter to 87.7%. Cost control measures led to improved margin
expansion.
Operating income came in at $172.9 million, up 22.3% year over
year. Operating margin increased 500 basis points year over year to
55.2%. The improvement in operating results was driven by strong
revenue growth that blew past the 1.6% rise in operating expenses.
Cost control was also noticed with the year-over-year drop in
R&D expenses.
The quarter's GAAP net income was $143.6 million or 68 cents per
share, up from $122.1 million or 57 cents in the comparable quarter
last year. Excluding special items but including stock-based
compensation expense, non-GAAP net income was $147.5 million or 69
cents a share compared with $130.2 million or 61 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 $1.40 billion, up from $1.36
billion in the prior quarter. Trade receivables were $243.4
million. Cash flow from operations was $275.3 million, up from
$173.2 million in the previous quarter. Capital expenditure
increased to $2.42 million from $1.72 million in the prior quarter.
During the quarter, Check Point repurchased 1.29 million shares for
a total consideration of $75.0 million.
Second Quarter & Fiscal 2012 Outlook
Management sees revenue in a range of $324.0 million to $336.0
million, and earnings (excluding one-time items) in the range of 74
cents to 77 cents per share. For fiscal 2012, Check Point still
expects revenue of $1.345-$1.395 billion and earnings per share
ex-items of $3.10-$3.20. The Zacks Consensus Estimates for the
second quarter and fiscal 2012 are pegged at 72 cents and $3.01,
respectively. GAAP earnings per share would be 7 cents less than
the non-GAAP figure.
Our Take
Check Point delivered an impressive first quarter, beating the
Zacks Consensus Estimate with respect to bottom line and matching
with respect to top line. 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.
(
CSCO
) and
Juniper Networks Inc.
(
JNPR
). 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
encouraging. Considering all these, we believe that the second
quarter and fiscal guidance are quite conservative.
However, limited margin expansion potential (over dependence on
indirect sales model), an uncertain economic environment
competitive pressures and Check Point's significant European
exposure are concerns.
Currently, Check Point has a Zacks #3 Rank, implying a
short-term Hold recommendation.
CHECK PT SOFTW (
CHKP
): Free Stock Analysis Report
CISCO SYSTEMS (
CSCO
): Free Stock Analysis Report
JUNIPER NETWRKS (
JNPR
): Free Stock Analysis Report
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