Check Point Software Technologies Ltd. (CHKP) posted strong first quarter 2011 results, with adjusted earnings per share of 61 cents surpassing the Zacks Consensus Estimate of 58 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.

Revenue

Check Point reported revenue of $281.3 million in the first quarter, up 14.8% from $245.1 million in the year-ago period. The quarter’s revenue surpassed the Zacks Consensus Estimate of $276.0 million. The improvement can be attributed to a 15.7% year-over-year growth in Check Point’s Product and Licenses revenue. Check Point experienced continued strength in the U.S. and high growth in Asia and Latin America, while Europe saw modest gains.

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 14.3% year-over-year growth in its Software Updates, Maintenance and Services revenues.

Operating Results

Excluding amortization expenses, but including stock-based compensation expenses, non-GAAP gross profit increased 15.2% year over year to $249.4 million. Non-GAAP gross margin was 88.8%, compared to 88.3% in the year-ago quarter.

Non-GAAP operating income (including stock-based compensation expenses) came in at $152.4 million, up 18.4% year over year. Operating margin increased 170 basis points year over year to 54.2%. The improvement in operating results was driven by strong revenue growth, which outpaced the 8.3% increase in operating expenses.

The quarter’s GAAP net income was $122.1 million or 59 cents per share, up from $98.0 million or 47 cents per share in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $130.2 million or 61 cents a share compared with $109.1 million or 51 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 $1.08 billion, slightly down from $1.09 billion in the prior quarter. Trade receivables were $199.1 million. Cash flow from operations was $211.6 million in the quarter, up from $162.8 million in the previous quarter. Capital expenditure increased to $1.86 million from $1.30 million in the prior quarter. During the quarter, Check Point repurchased 1.52 million shares for a total consideration of $75.0 million.

Our Take

Check Point delivered an impressive first quarter, beating Zacks Estimates both in respect of revenue and earnings per share. We think that investor sentiment will be in the favor of Check Point as they remain encouraged by the company’s market share gains against the tech giant Cisco Systems Inc. (CSCO).

We are also encouraged by the steady traction of its Software Blade architecture (security solution) that will likely lead to solid revenue growth in the coming quarters, which will in turn drive considerable upside to the shares. However, currency fluctuations and uncertainty regarding shipments in Japan could rationalize the earnings potential to some extent, in the near term.

Currently, CheckPoint has a Zacks #2 Rank implying a short-term Buy recommendation.

 
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