Check Point Software Technologies Ltd.’s (CHKP) second quarter 2011 earnings of 64 cents per share inched past the Zacks Consensus Estimate of 63 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 $300.6 million in the second quarter, up 15.1% from $261.1 million in the year-ago period. The improvement can be attributed to a 14.8% year-over-year growth in Product and Licenses revenue. Moreover, Check Point witnessed a total 15.4% 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 security solutions and Application Control software blades, as well as new product launches. The growth in demand was largely due to a general customer pattern of upgrading security levels.
Operating Results
Excluding amortization expenses, but including stock-based compensation expenses, non-GAAP gross profit increased 15.0% year over year to $266.0 million. Non-GAAP gross margin was 88.5%, compared to 88.6% in the year-ago quarter.
Non-GAAP operating income (including stock-based compensation expenses) came in at $161.1 million, up 18.8% year over year. Operating margin increased 170 basis points year over year to 53.6%. The improvement in operating results was driven by strong revenue growth that outpaced the 7.7% increase in operating expenses.
The quarter’s GAAP net income was $128.0 million or 60 cents per share, up from $102.9 million or 48 cents per share in the comparable quarter last year. Excluding special items but including stock-based compensation expense, non-GAAP net income was $137.0 million or 64 cents a share compared with $114.5 million or 54 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 $1.15 billion, up from $1.08 billion in the prior quarter. Trade receivables were $197.2 million. Cash flow from operations was $175.5 million down from $211.6 million in the previous quarter. Capital expenditure decreased to $1.62 million from $1.86 million in the prior quarter. During the quarter, Check Point repurchased 1.38 million shares for a total consideration of $75.0 million.
Our Take
Check Point delivered an impressive second quarter, beating the Zacks Consensus Estimates with respect to earnings per share. We think that investor sentiment will be in Check Point’s favor as they remain encouraged by its 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.
Currently, CheckPoint has a Zacks #2 Rank implying a short-term Buy recommendation.
