Check Point Software Reports Financial Results for the Second Quarter of 2007

Check Point® Software Technologies Ltd. (NASDAQ:CHKP), the worldwide leader in securing the Internet, today announced financial results for the second quarter ended June 30, 2007. Financial Highlights for the Second Quarter of 2007 Revenues: $176.2 million, an increase of 27 percent, compared to $138.9 million in the second quarter of 2006. In the second quarter of 2007, network security contributed $155.8 million to revenues, an increase of 12 percent, compared to the second quarter of 2006. Data security contributed $20.4 million to revenues, an increase of 17 percent, compared to the first quarter of 2007. Earnings Per Diluted Share – GAAP: $0.31, an increase of 13 percent, compared to $0.27 in the second quarter of 2006. GAAP earnings per share in the second quarter of 2007 included charges that were not included in the second quarter of 2006, in the amount of $0.03 per share, for equity based compensation expenses and acquisition related charges (net), in connection with the acquisitions of Protect Data and NFR Security. Earnings Per Diluted Share – Non GAAP1: $0.38, an increase of 20 percent, compared to $0.32 in the second quarter of 2006. Non-GAAP EPS exclude equity based compensation expenses and acquisition related charges2. Net Income – GAAP: $69.5 million, an increase of 6 percent, compared to $65.7 million in the second quarter of 2006. GAAP net income in the second quarter of 2007 included charges that were not included in the second quarter of 2006, in the amount of $7.5 million, for equity based compensation expenses and acquisition related charges (net), in connection with the acquisitions of Protect Data and NFR Security. Net Income – Non GAAP: $85.7 million, an increase of 13 percent, compared to $76.0 million in the second quarter of 2006. Non-GAAP net income excludes equity based compensation expenses and acquisition-related charges. Deferred Revenues: $236.2 million, an increase of $59.7 million, or 34 percent, over deferred revenues as of June 30, 2006. Share Repurchase Program: During the second quarter of 2007, Check Point purchased 2.1 million shares at a total cost of approximately $50.0 million. Operating Cash Flow: Cash flow from operations was $81.5 million, compared to $88.6 million in the second quarter of 2006. "During the second quarter of 2007, we continued to generate strong financial results which exceeded our projections,” said Gil Shwed, chairman and chief executive officer of Check Point Software. "These results were driven by growth in our core enterprise network security business complemented by our data security business.” During the second quarter of 2007, we introduced products aligned with our PURE focus on IT security and strengthened our unified security architecture. Recent key business highlights and product introductions included the following: CoreXL Acceleration Technology in VPN-1 Power Achieved Performance Breakthrough – Leveraging off-the-shelf multi-core processors, VPN-1 Power with CoreXL is the first network security gateway that enables security administrators to gain data center level performance without compromising on deep security inspection. Key performance statistics include 12 Gbps firewall inspection and 5.3 Gbps intrusion prevention inspection. IPS-1 Integrated into Check Point’s Unified Security Architecture – Check Point has successfully integrated IPS-1 into its key security event correlation and management components. Recently acquired dedicated intrusion prevention solution delivers accurate, real-time mitigation against known and unknown attacks. Data and Endpoint Security for Vista – Pointsec PC, Check Point’s full-disk encryption solution for laptop and desktop PCs, is now available to protect enterprise computers running the Windows Vista™ operating system. Check Point also introduced its consumer ZoneAlarm Internet Security Suite for Vista. Successful Check Point Experience Event for Partners and Customers in the Americas – Check Point held a major business and networking event to educate partners and customers on Check Point solutions. Participants benefited from valuable technical and business discussions and product demonstrations to improve technical know-how and expertise. Partial List of Awards in the Second Quarter of 2007 Gil Shwed Inducted to the CRN Industry Hall of Fame – CRN honored Shwed for his work as an early firewall pioneer and for recently diversifying Check Point into data security. The CRN Industry Hall Of Fame honors outstanding individuals who create breakthrough technology and propel the high-tech industry and channel to new heights. Amnon Bar-Lev Named as a CRN Channel Chief – Check Point’s vice president of field operations was recognized for creating, promoting and executing effective channel partner programs and strategies. This is the fourth award Check Point has received from CRN in the last three years for its channel and partner programs. Check Point Won Information Security Magazine and SearchSecurity.com 2007 Readers’ Choice Award in UTM Category – A Gold award was given to VPN-1 UTM for the depth of security it provides under a single platform that can be centrally controlled and updated in real time. Mr. Shwed continued, "The results in the first half of 2007 validate our strategy to be the leading pure-play IT security company, offering a Unified Security Architecture across the network-security and the data-security layers. We look forward to the second half of 2007 as we continue to focus on executing our strategy.” Conference Call and Webcast Information Check Point will host a conference call with the investment community on July 24, 2007 at 8:30 AM ET/5:30 AM PT. To listen to the live webcast, please visit Check Point’s website at http://www.checkpoint.com/ir. A replay of the conference call will be available through August 7, 2007 at the company's website http://www.checkpoint.com/ir or by telephone at (973) 341-3080, pass code 8987537. 1 See "Use of Non-GAAP Financial Information” and "Reconciliation between GAAP and Non-GAAP Statement of Income” below for more information regarding Check Point’s use of Non-GAAP financial measures. 2 "Equity based compensation expenses” refer to the amortized fair value of all equity based awards granted to employees. "Acquisition related charges” refer to the impact of the amortization of intangible assets and other acquisition related expenses. Use of Non-GAAP Financial Information In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Check Point uses non-GAAP measures of net income and earnings per share, which are adjustments from results based on GAAP to exclude non-cash equity based compensation charges in accordance with SFAS 123R and acquisition related charges. Check Point’s management believes the non-GAAP financial information provided in this release is useful to investors’ understanding and assessment of Check Point’s on-going core operations and prospects for the future. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Management uses both GAAP and non-GAAP information in evaluating and operating business internally and as such has determined that it is important to provide this information to investors. Safe Harbor Statement Certain statements in this press release are forward-looking statements. Forward-looking statements include statements regarding Check Point’s belief that its second quarter results validate its strategy to be the leading pure-play company in IT security offering a Unified Security Architecture across the network-security and data-security layers, and Check Point’s plans to continue to focus on executing its strategy in the second half of 2007. 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: whether customers purchase and adopt Check Point solutions for their IT security architecture, the mix of sales of new products and long-term subscriptions; economic and political uncertainties; the impact of political changes and weaknesses in various regions of the world, including the commencement or escalation of hostilities or acts of terrorism; the inclusion of network security functionality in third-party hardware or system software; any foreseen and unforeseen developmental or technological difficulties with regard to Check Point's products; changes in the competitive landscape, including new competitors or the impact of competitive pricing and products; rapid technological advances and changes in customer requirements to which Check Point is unable to respond expeditiously, if at all; a shift in demand for products such as Check Point's; factors affecting third parties with which Check Point has formed business alliances; timely availability and customer acceptance of Check Point's new and existing products; and other factors and risks discussed in Check Point's Annual Report on Form 20-F for the year ended December 31, 2006, which is on file with the Securities and Exchange Commission. Check Point assumes no obligation to update information concerning its expectations. About Check Point Software Technologies Ltd. Check Point Software Technologies Ltd. (www.checkpoint.com) is a leader in securing the Internet. The company is a market leader in the worldwide enterprise firewall, personal firewall, data security and VPN markets. Check Point’s PURE focus is on IT security with its extensive portfolio of network security, data security and security management solutions. Through its NGX platform, Check Point delivers a unified security architecture for a broad range of security solutions to protect business communications and resources for corporate networks and applications, remote employees, branch offices and partner extranets. The company also offers market leading data security solutions through the Pointsec product line, protecting and encrypting sensitive corporate information stored on PCs and other mobile computing devices. Check Point's award-winning ZoneAlarm Internet Security Suite and additional consumer security solutions protect millions of consumer PCs from hackers, spyware and data theft. Extending the power of the Check Point solution is its Open Platform for Security (OPSEC), the industry's framework and alliance for integration and interoperability with "best-of-breed" solutions from hundreds of leading companies. Check Point solutions are sold, integrated and serviced by a network of Check Point partners around the world and its customers include 100 percent of Fortune 100 companies and tens of thousands of businesses and organizations of all sizes. ©2003–2007 Check Point Software Technologies Ltd. All rights reserved. Check Point, AlertAdvisor, Application Intelligence, Check Point Express, Check Point Express CI, the Check Point logo, Check Point Pointsec Protector, ClusterXL, Confidence Indexing, ConnectControl, Connectra, Connectra Accelerator Card, Cooperative Enforcement, Cooperative Security Alliance, CoSa, DefenseNet, Dynamic Shielding Architecture, Eventia, Eventia Analyzer, Eventia Reporter, Eventia Suite, FireWall-1, FireWall-1 GX, FireWall-1 SecureServer, FloodGate-1, Hacker ID, Hybrid Detection Engine, IMsecure, INSPECT, INSPECT XL, Integrity, Integrity Clientless Security, Integrity SecureClient, InterSpect, IPS-1, IQ Engine, MailSafe, NG, NGX, Open Security Extension, OPSEC, OSFirewall, Pointsec, Pointsec Mobile, Policy Lifecycle Management, Provider-1, Safe@Home, Safe@Office, SecureClient, SecureClient Mobile, SecureKnowledge, SecurePlatform, SecurePlatform Pro, SecuRemote, SecureServer, SecureUpdate, SecureXL, SecureXL Turbocard, Sentivist, SiteManager-1, SmartCenter, SmartCenter Express, SmartCenter Power, SmartCenter Pro, SmartCenter UTM, SmartConsole, SmartDashboard, SmartDefense, SmartDefense Advisor, Smarter Security, SmartLSM, SmartMap, SmartPortal, SmartUpdate, SmartView, SmartView Monitor, SmartView Reporter, SmartView Status, SmartViewTracker, SofaWare, SSL Network Extender, Stateful Clustering, TrueVector, Turbocard, UAM, UserAuthority, User-to-Address Mapping, UTM-1, VPN-1, VPN-1 Accelerator Card, VPN-1 Edge, VPN-1 Express, VPN-1 Express CI, VPN-1 Power, VPN-1 Power VSX, VPN-1 Pro, VPN-1 SecureClient, VPN-1 SecuRemote, VPN-1 SecureServer, VPN-1 UTM, VPN-1 UTM Edge, VPN-1 VSX, Web Intelligence, ZoneAlarm, ZoneAlarm Anti-Spyware, ZoneAlarm Antivirus, ZoneAlarm Internet Security Suite, ZoneAlarm Pro, ZoneAlarm Secure Wireless Router, Zone Labs, and the Zone Labs logo are trademarks or registered trademarks of Check Point Software Technologies Ltd. or its affiliates. ZoneAlarm is a Check Point Software Technologies, Inc. Company. All other product names mentioned herein are trademarks or registered trademarks of their respective owners. The products described in this document are protected by U.S. Patent No. 5,606,668, 5,835,726, 5,987,611, 6,496,935, 6,873,988, 6,850,943, and 7,165,076 and may be protected by other U.S. Patents, foreign patents, or pending applications. CHECK POINT SOFTWARE TECHNOLOGIES LTD. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS   (In thousands, except per share amounts)   Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 (unaudited) (unaudited) (unaudited) (unaudited) Revenues: Products and licenses $73,318 $58,492 $139,366 $113,311 Software subscriptions 69,987 63,550 137,563 126,077 Total product, license and software subscriptions revenues 143,305 122,042 276,929 239,388 Services 32,887 16,894 63,232 33,140 Total revenues 176,192 138,936 340,161 272,528   Operating expenses: Cost of revenues 19,800 8,888 36,760 16,955 Research and development 20,775 15,911 39,643 32,194 Selling and marketing 55,176 39,716 107,338 76,079 General and administrative 11,621 10,393 25,721 22,554 Acquired in process research and development - - 17,000 - Total operating expenses 107,372 74,908 226,462 147,782   Operating income 68,820 64,028 113,699 124,746 Financial income, net 11,645 16,218 24,713 31,726 Income before income taxes 80,465 80,246 138,412 156,472 Taxes on income 11,004 14,530 22,003 29,123 Net income $69,461 $65,716 $116,409 $127,349 Earnings per share (basic) $0.31 $0.27 $0.52 $0.53 Number of shares used in computing earnings per share (basic) 223,291 240,982 222,989 242,349 Earnings per share (diluted) $0.31 $0.27 $0.52 $0.52 Number of shares used in computing earnings per share (diluted) 226,151 240,951 225,806 243,325 CHECK POINT SOFTWARE TECHNOLOGIES LTD. RECONCILIATION OF SUPPLEMENTAL FINANCIAL INFORMATION   (In thousands, except per share amounts)   Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 (unaudited) (unaudited) (unaudited) (unaudited)   GAAP operating income $68,820 $64,028 $113,699 $124,746 Stock-based compensation (1) 8,588 9,315 16,926 20,915 Amortization of intangible assets and acquisition related expenses (2) 10,338 1,505 19,301 3,937 Acquired in process research and development - - 17,000 - Non-GAAP operating income $87,746 $74,848 $166,926 $149,598   GAAP net income $69,461 $65,716 $116,409 $127,349 Stock-based compensation (1) 8,588 9,315 16,926 20,915 Amortization of intangible assets and acquisition related expenses (2) 10,338 1,505 19,301 3,937 Acquired in process research and development - - 17,000 - Taxes on stock-based compensation and amortization of intangible assets and acquisition related expenses (3)   (2,698)   (542)   (5,344)   (1,084) Non-GAAP net income $85,689 $75,994 $164,292 $151,117   GAAP Earnings per share (diluted) $0.31 $0.27 $0.52 $0.52 Stock-based compensation (1) 0.03 0.04 0.07 0.08 Amortization of intangible assets and acquisition related expenses (2) 0.05 0.01 0.09 0.02 Acquired in process research and development 0.00 0.00 0.07 0.00 Taxes on stock-based compensation and amortization of intangible assets and acquisition related expenses (3)   (0.01) 0.00 (0.02) 0.00 Non-GAAP Earnings per share (diluted) $0.38 $0.32 $0.73 $0.62   Number of shares used in computing Non-GAAP earnings per share (diluted) 226,151 240,951 225,806 243,325   (1) Stock-based compensation: Cost of revenues $206 $59 $334 $169 Research and development 1,060 2,968 2,070 6,517 Selling and marketing 2,627 2,197 4,348 4,816 General and administrative 4,695 4,091 10,174 9,413 Total before taxes $8,588 $9,315 $16,926 $20,915   (2) Amortization of intangible assets and acquisition related expenses: Cost of revenues $7,154 $1,354 $13,416 $2,708 Selling and marketing 3,184 151 5,885 302 General and administrative - - - 927 Total before taxes 10,338 1,505 19,301 3,937 (3) Taxes on stock-based compensation and amortization of intangible assets and acquisition related expenses (2,698) (542) (5,344) (1,084) Total , net $16,228 $10,278 $30,883 $23,768 CHECK POINT SOFTWARE TECHNOLOGIES LTD. CONDENSED CONSOLIDATED BALANCE SHEET DATA   (In thousands)   ASSETS   June 30, December 31, 2007 2006 (unaudited) (unaudited) Current assets: Cash and cash equivalents $262,164 $519,443 Marketable securities 452,886 571,621 Trade receivables, net 132,393 141,881 Other receivables and prepaid expenses 23,519 22,408 Total current assets 870,962 1,255,353   Long-term assets: Marketable securities 435,126 558,874 Property, plant and equipment, net 55,803 47,192 Intangible assets, net 180,809 23,117 Goodwill 659,316 182,115 Deferred income taxes, net 4,598 6,977 Other assets 697 534 Total long-term assets 1,336,349 818,809   Total assets $2,207,311 $2,074,162 LIABILITIES AND SHAREHOLDERS’ EQUITY   Current liabilities: Deferred revenues $236,228 $204,149 Trade payables and other accrued liabilities 169,158 153,900 Total current liabilities 405,386 358,049   Deferred tax liability, net 38,662 - Accrued severance pay, net 5,224 4,580 Minority 447 -   Total liabilities 449,719 362,629   Shareholders’ equity: Share capital 774 774 Additional paid-in capital 440,333 422,381 Treasury shares at cost (815,937) (728,909) Accumulated other comprehensive loss (3,944) (6,293) Retained earnings 2,136,366 2,023,580 Total shareholders’ equity 1,757,592 1,711,533 Total liabilities and shareholders’ equity $2,207,311 $2,074,162 Total cash and cash equivalents, deposits and marketable securities 1,150,176 1,649,938 CHECK POINT SOFTWARE TECHNOLOGIES LTD. SELECTED CONSOLIDATED CASH FLOW DATA   (In thousands)   Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 (unaudited) (unaudited) (unaudited) (unaudited) Cash flow from operating activities: Net income $69,461 $65,716 $116,409 $127,349 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment 1,707 1,334 2,944 2,745 Decrease in trade and other receivables, net 2,063 13,416 40,631 42,884 Increase (decrease) in deferred revenues, trade payables and other accrued liabilities   (7,557)   (2,923) (13,343) 6,133 Acquisition of in process research and development - - 17,000 - Amortization of intangible assets 10,338 1,505 19,301 3,010 Stock-based compensation 8,588 9,315 16,926 20,915 Deferred income taxes, net (3,136) 221 (8,396) 2,153 Net cash provided by operating activities 81,464 88,584 191,472 205,189   Cash flow from investing activities: Cash paid in conjunction with the acquisition of Protect Data, net (260) - (594,294) - Investment in property, plant and equipment (5,564) (38,837) (9,986) (40,010) Net cash used in investing activities (5,824) (38,837) (604,280) (40,010)   Cash flow from financing activities: Proceeds from issuance of shares upon exercise of options 7,418 23,040 14,935 40,448 Purchase of treasury shares (50,000) (138,433) (105,627) (202,358) Tax benefit related to exercise of stock options - 2,200 - 3,450 Net cash used in financing activities (42,582) (113,193) (90,692) (158,460)   Unrealized gain (loss) on marketable securities, net (4,388) (1,414) 3,738 (5,995)   Increase (decrease) in cash and cash equivalents, deposits and marketable securities 28,670 (64,860) (499,762) 724   Cash and cash equivalents, deposits and marketable securities at the beginning of the period 1,121,506 1,790,927 1,649,938 1,725,343   Cash and cash equivalents, deposits and marketable securities at the end of the period 1,150,176 1,726,067 1,150,176 1,726,067