Check Point Software Technologies Ltd. (CHKP) posted strong fourth quarter 2010 results, with adjusted earnings per share of 70 cents surpassing the Zacks Consensus Estimate of 65 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 regions.
Revenue
Check Point reported revenue of $318.5 million in the fourth quarter, up 17.1% from $272.1 million in the year-ago period. The quarter’s revenue surpassed the guided range of $290.0–$312.0 million and the Zacks Consensus Estimate of $305.0 million. The improvement can be attributed to a 19.1% year-over-year growth in Check Point’s Product and Licenses revenue.
The improvement in Product revenue was led by strong product adoption including the IP series, Power-1, UTM-1 and Smart-1 solutions. Moreover, Check Point witnessed a 15.5% year-over-year growth in its Software Updates, Maintenance and Services revenue.
Operating Results
Excluding amortization expenses, but including the stock-based compensation expenses, non-GAAP gross profit increased 17.1% year over year to $279.7 million. Non-GAAP gross margin was 87.8%, flat with the year-ago quarter.
Non-GAAP operating income came in at $175.1 million, up 21.1% year over year. Operating margin increased 190 basis points year over year to 55.0%. The improvement in operating results was driven by strong revenue growth, which outpaced the 10.6% increase in operating expenses.
The quarter’s GAAP net income was $137.4 million or 64 cents per share, up from $109.5 million or 51 cents per share in the comparable quarter last year. Excluding special items and including stock-based compensation expense, non-GAAP net income was $149.1 million or 70 cents a share compared with $122.6 million or 57 cents a share in the year-earlier quarter.
Balance Sheet & Cash Flow
Check Point exited the quarter with cash, cash equivalents and marketable securities of approximately $1.09 billion, up from $954.2 million in the prior quarter. Trade receivables were $238.2 million. Cash flow from operations was $162.8 million in the quarter, up from $144.6 million in the previous quarter. Capital expenditure decreased to $1.30 million from $1.44 million in the prior quarter. During the quarter, Check Point repurchased 1.16 million shares for a total consideration of $50 million.
Our Take
Check Point delivered an impressive fourth quarter, beating the Zacks Estimates both in respect of revenue and earnings per share. The quarter’s results also surpassed the company’s guidance.
We remain encouraged by the steady traction of Software Blade architecture (security solution) that will likely lead to solid revenue growth in the coming quarters, which would drive considerable upside to the shares.
Currently, CheckPoint has a Zacks #2 Rank implying a short-term Buy recommendation.
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