Check Point Software Technologies Ltd. (CHKP) reported fourth quarter 2014 adjusted earnings (including stock-based compensation but excluding amortization of intangible assets) of 98 cents, which came in line with the Zacks Consensus Estimate. Reported earnings increased 6.5% on a year over year basis.
Revenues
Check Point’s fourth-quarter revenues of $420.6 million increased 8.7% from the year-ago quarter and also surpassed the Zacks Consensus Estimate of $415 million.
The year-over-year revenue growth was aided by a 9.8% increase in revenues from Products & Software Blades and a 7.3% improvement in Software Updates and maintenance revenues. The company reported 19.5% year-over-year growth in revenues from Software Blades subscription.
Check Point witnessed higher demand for its data center and high-end appliances. Another factor that contributed to the overall growth was the increasing number of large deal signings. During the quarter, Check Point recorded 13% year-over-year increase in customers who signed deals worth $1 million or more.
Geographically, Americas contributed 48% of revenues during the quarter, Europe contributed 38% and Asia-Pacific, Japan and Middle East and Africa contributed the remaining 14% of total revenue.
Operating Results
On a year-over-year basis, adjusted gross profit (including stock-based compensation but excluding amortization of intangible assets) increased 8.2% to $368.8 million, while margins came in at 87.7% compared with 88.1% in the year-ago quarter.
Adjusted operating expenses (including stock-based compensation but excluding amortization of intangible assets) increased 10.1% year over year to $139 million as the company continued to invest in the business. The year-over-year increase can also be attributed to higher research and development, selling and marketing and general and administrative expenses. As a percentage of revenues, operating expenses increased 44 basis points (bps).
Adjusted operating income (including stock-based compensation but excluding amortization of intangible assets) came in at $229.8 million, up 7% year over year. However, margins contracted 85 bps primarily due to higher expenses.
Adjusted net income (including stock-based compensation but excluding amortization of intangible assets and other one-time items calculated on a proportionate tax basis) was $186.3 million or 98 cents, up from $179.9 million or 92 cents reported in the comparable quarter last year.
Balance Sheet & Cash Flow
Check Point exited the quarter with cash, cash equivalents and marketable securities of approximately $1.31 billion compared with $1.24 billion in the previous quarter. Cash flow from operations was $210.4 million compared with $202.5 million in the previous quarter. During the quarter, Check Point repurchased 2.62 million shares for $195 million.
Outlook
Check Point expects its revenues for the first quarter of 2015 to be in the range of $360 million to $375 million, in line with the Zacks Consensus Estimate of $368 million at the mid-point. The company expects non-GAAP earnings per share between 89 cents and 93 cents, while the Zacks Consensus Estimate is pegged at 86 cents.
The company expects fiscal 2015 revenues in the range of $1.600 billion to $1.650 billion and earnings between $3.90 and $4.02 per share. The Zacks Consensus Estimate for revenues and earnings are pegged at $1.594 billion and $3.77 per share, respectively, lower than management’s guidance.
Our Take
Check Point delivered modest fourth-quarter results. While the top line beat the Zacks Consensus Estimate, the bottom line was on par with the same. Nevertheless, both revenues and earnings compared favorably on a year over year basis. The company also provided an encouraging first quarter and fiscal 2015 guidance.
Furthermore, the rapid adoption of Check Point’s data center appliances and the continuous enhancements in data center product lines are expected to provide adequate support to revenue growth.
Moreover, Check Point’s settlement with the Israeli tax authorities is a long-term positive. The company’s continuous share buybacks bode well for investors.
However, competition from Cisco Systems Inc. (CSCO), Juniper Networks Inc. (JNPR) and Fortinet Inc. (FTNT); an uncertain economic environment, competitive pressure, currency headwinds and Check Point’s significant European exposure are concerns.
Currently, Check Point carries a Zacks Rank #3 (Hold).
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