Check Point Software Technologies Ltd. (CHKP)

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Check Point Software Technologies Ltd. (CHKP)

Q3 2012 Earnings Call

October 17, 2012 08:30 am ET


Gil Shwed – Founder, Chairman & Chief Executive Officer

Tal Payne – Chief Financial Officer

Kip Meintzer – Head of Global Investor Relations


Shaul Eyal – Oppenheimer & Co.

Rob Owens – Pacific Crest Securities

Shelby Seyrafi – FBN Securities

Walter Pritchard – Citi Investment Research and Analysis

Daniel Ives – FBR Capital Markets

Brad Zelnick – Macquarie (USA) Research

Philip Winslow – Credit Suisse

Michael Turits – Raymond James

Rick Sherlund – Nomura Securities

Brent Thill – UBS

Aaron Schwartz – Jefferies & Company

Greg Dunham – Goldman Sachs

Sterling Auty – JP Morgan

Jonathon Ho – William Blair

Keith Weiss – Morgan Stanley

Tal Liani – Bank of America-Merrill Lynch

Scott Zeller – Needham & Company

Brian Freed – Wunderlich Securities

Gregg Moscowitz – Cowen & Co.



Greetings, and welcome to the Check Point Software Q3 Conference Call. (Operator instructions.) As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host Kip E. Meintzer, Head of Global Investor Relations for Check Point Software Technologies. Mr. Meintzer, you may now begin.

Kip Meintzer

Thank you. Good morning, everyone. I’d like to thank all of you for joining us today to discuss Check Point’s financial results for Q3 2012. Joining me on the call today are Gil Shwed, Founder, Chairman, and CEO; along with our Chief Financial Officer Tal Payne.

As a reminder this call is being webcast live on our website and is being recorded for replay. To access the live webcast and replay information please visit the company’s website at For your convenience, the conference call replay will be available through October 24th. If you’d like to reach us after the call please contact investor relations by emailing or by phoning at +1 (650) 628-2040.

Before we begin with management’s presentation I’d like to highlight the following items. During the course of this call, Check Point representatives will make certain forward-looking statements. These forward-looking statements my include our expectations regarding demand for our security products; our expectations regarding the introduction of new products, programs, or the success of those products or programs; and our expectations regarding our business and financial outlook for Q4 2012. Other statements which may be made in response to questions which refer to our beliefs, plans, expectations, or intentions are also forward-looking statements for the purposes of the Safe Harbor provided by the Private Securities Litigation Reform Act.

Because these statements pertain to future events they are subject to various risks and uncertainties and actual results could differ materially from Check Point’s current expectations and beliefs. Factors that could cause or contribute to such differences include but are not limited to the risks discussed in Check Point’s latest annual report on Form 20(f). As a reminder, Check Point assumes no obligation to update its forward-looking statements.

In our press release which has been posted on our website we present GAAP and non-GAAP results along with reconciliation tables which highlight this data, as well as the reasons for our presentation of non-GAAP information. Now I would like to turn the call over to Check Point’s Chief Financial Officer Tal Payne for a review of the results.

Tal Payne

Thank you, Kip, and hello everyone. I would like to thank you all for joining us today for a review of the Q3 financial results. Our revenues for the quarter increased by 8% year-over-year and non-GAAP EPS was $0.79 representing 10% growth – both in the upper half of our guidance. Before I proceed further into the numbers let me remind you that our Q3 GAAP financial results include non-cash equity-based compensation charges, amortization of required intangible assets and the related tax effects. Keep in mind that non-GAAP information is presented excluding these items.

Now let’s take a look at the financial highlights for the quarter. In Q3 our revenues reached $332.4 million, representing an increase of 8%, compared to $308.3 million in Q3 2011. This growth was driven by continued strength in our software update maintenance and subscription revenues. These revenues reached $211.3 million with growth of 13% year-over-year. The growth was driven by our Annuity Software Blades that are recognized as subscription.

We continue to see great success in our Annuity Blades led by IPS application control in our recently-introduced Anti-Bot Blade. Product and license revenues were $121 million compared to $120.7 million in the same period last year. The number of Enterprise Gateways sold continued to grow and an impressive double-digit pace. This growth was offset by customers opting to purchase slightly lower-end models as a result of increased performance of our new appliance line.

Our results were also affected by current macroeconomic environments and by our customers’ tightened budgets. As you recall, our worldwide price list is in dollars. The continued weakening of many local currencies against the dollar specifically in Europe effectively reduced the buying power in dollars of the customers. On the other hand, North America continued to show great results with double-digit growth both in products and in services.

Deferred revenues as of September 30, 2012, were $505.9 million, an increase of $51.5 million or 11% over September 30, 2011. Revenue distributions by geography for the quarter were as follows: the Americas contributed 45% of revenues; Europe contributed 37%; and Asia-Pacific, Japan, Middle East and Africa region contributed the remaining 18%. From a deal size and quantity perspective this quarter, transactions greater than $50,000 accounted for 66% of total order value compared to 63% in the same period a year ago. We had 31 customers that had a transaction value greater than $1 million.

From an operating perspective we reported great results. Our non-GAAP operating income was $195.6 million in Q3 2012, an increase of 8% compared to the same period in 2011. We continue to invest in our business and have increased our headcount by 15% year-over-year, mainly in R&D, sales, and technical support. The effect of these increased costs was offset partially this year by the strengthening of the dollar.

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