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

Check Point® Software Technologies Ltd. (NASDAQ:CHKP), the worldwide leader in securing the Internet, today announced its financial results for the third quarter ended September 30, 2007. "During the third quarter, Check Point delivered record quarterly results for revenues and non-GAAP net income and EPS,” said Gil Shwed, chairman and chief executive officer of Check Point Software. "The overall success of the quarter is a result of our pure focus on security and Unified Security Architecture. This is demonstrated by the growth of our new data security business and core network security business, which delivered the largest quarterly revenue contribution in our history.” Financial Highlights for the Third Quarter of 2007: Total Revenues: $184 million, an increase of 29 percent compared to $142.5 million in the third quarter of 2006. Network security accounted for a record $163 million in revenues and data security contributed $21 million in revenues. Net Income – GAAP: $76.7 million, an increase of 8 percent compared to $71.1 million in the third quarter of 2006. Net income in the third quarter of 2007 includes acquisition related charges, net of taxes, of $7.5 million and equity-based compensation expenses, net of taxes, of $7.7 million. Equity-based compensation expenses have been reported since the beginning of 2006 pursuant to SFAS 123R. Net Income – Non GAAP1: $91.9 million, an increase of 17 percent compared to $78.6 million in the third quarter of 2006. Non-GAAP net income excludes equity-based compensation expenses and acquisition related charges2. Earnings per Diluted Share – GAAP: $0.34, an increase of 10 percent compared to $0.31 in the third quarter of 2006. Equity-based compensation expenses of $0.04 are included in the third quarter of 2007 GAAP results pursuant to SFAS 123R and acquisition related charges of $0.05. Net of taxes, these charges totaled $0.07. Earnings per Diluted Share – Non GAAP: $0.41, an increase of 21 percent compared to $0.34 in the third quarter of 2006. Non-GAAP EPS excludes equity-based compensation expenses and acquisition related charges. Deferred Revenues: $227.2 million represented an increase of $53.8 million or a 31 percent increase compared to deferred revenues as of September 30, 2006. Cash Flow: cash flow from operations was $88.8 million, an increase of 18 percent compared to the third quarter of 2006. Share Repurchase Program: during the third quarter of 2007, Check Point repurchased 1.8 million shares at a total cost of $42.3 million. Recent Business Highlights Include: Increasing number of large transactions – We continued to see growth in the number of large transactions originating from a variety of industries, and across all geographies. Transactions greater than $50 thousand accounted for 40% of total order value. This quarter, we had 15 transactions larger than one million dollars including customers from the world’s largest financial institutions, consumer goods manufacturers, telecommunication companies and government agencies. Third Quarter Geographical Revenue Distribution – Remained consistent with the second quarter, with the Americas representing 47% of revenue, with EMEA contributing 42%, and Asia Pacific and Japan contributing the remaining 11% of revenue for the quarter. Leadership Recognized in Gartner’s 2007 Magic Quadrant - Gartner, Inc. announced Check Point’s leadership position in the 2007 "Magic Quadrant for Mobile Data Protection 2007" report. This evaluation is a validation of Check Point’s continuing success and commitment to securing sensitive information. Check Point offers businesses complete, industry-proven solutions that deploy quickly and easily to protect all sensitive data. Awarded New Government Security Certification - Certification in FIPS 140-2 for Pointsec Protector and the cryptography module utilized in Pointsec PC and Pointsec Mobile further establishes Check Point as a leading provider of data security solutions. The FIPS 140-2 standard ranks among the most difficult to achieve and is required before any encryption products can be offered to government entities. Key Partner and Customer Events – During the third quarter we hosted two of our annual Check Point Experience Events in Asia Pacific and Europe in which we shared our vision and solutions with key customers and partners. We've seen over a 30% increase in the number of attendees in our European conference. Mr. Shwed continued, "The third quarter of 2007 underscores the success we have experienced so far this year. We continue to be pleased with the performance of our data security business as we continue to lead this new and emerging market. Our core network security business is tracking better than our original expectations, driven largely by the success of our UTM-1 appliance products and Unified Security Architecture.” Recent Changes in Check Point’s Financial Reporting We have updated our financial statement reporting in accordance with the latest reporting standards. We now combine the Software Subscription line with the services line and it is now called Software updates, maintenance and services. We also split the Cost of revenues line in order to present Cost of products and licenses, cost of software updates, maintenance and services and Amortization of technology separately. 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, operating 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. Conference Call and Webcast Information Check Point will host a conference call with the investment community on October 22, 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 November 5, 2007 at the company's website http://www.checkpoint.com/ir or by telephone at (973) 341-3080, pass code 9308086. 1 See "Use of Non-GAAP Financial Information” and "Reconciliation of Supplemental Financial Information” below for more information regarding Check Point’s use of non-GAAP 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. 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 Nine Months Ended September 30, September 30, 2007   2006 2007   2006 (unaudited) (unaudited) (unaudited) (unaudited) Revenues: Products and licenses $76,890 $58,787 $216,256 $172,098 Software updates, maintenance and services 107,122 83,731 307,917 242,948 Total revenues 184,012 142,518 524,173 415,046   Operating expenses: Cost of products and licenses 8,511 3,579 20,498 9,399 Cost of software updates, maintenance and services 6,249 4,485 17,606 12,912 Amortization of technology 7,154 1,353 20,570 4,061 Total cost of revenues 21,914 9,417 58,674 26,372 Research and development 19,885 14,266 59,528 46,460 Selling and marketing 52,515 38,013 159,853 114,092 General and administrative 12,038 10,383 37,759 32,937 Acquired in process research and development - - 17,000 - Total operating expenses 106,352 72,079 332,814 219,861   Operating income 77,660 70,439 191,359 195,185 Financial income, net 11,569 15,595 36,282 47,321 Income before income taxes 89,229 86,034 227,641 242,506 Taxes on income 12,491 14,897 34,494 44,020 Net income $76,738 $71,137 $193,147 $198,486 Earnings per share (basic) $0.35 $0.31 $0.86 $0.83 Number of shares used in computing earnings per share (basic) 221,893 231,008 223,361 238,458 Earnings per share (diluted) $0.34 $0.31 $0.85 $0.83 Number of shares used in computing earnings per share (diluted) 224,974 231,656 226,266 239,327 CHECK POINT SOFTWARE TECHNOLOGIES LTD. RECONCILIATION OF SUPPLEMENTAL FINANCIAL INFORMATION (In thousands, except per share amounts)         Three Months Ended Nine Months Ended September 30, September 30, 2007   2006 2007 2006 (unaudited) (unaudited) (unaudited) (unaudited)   GAAP operating income $77,660 $70,439 $191,359 $195,185 Stock-based compensation (1) 8,299 6,473 25,225 27,388 Amortization of intangible assets and acquisition related expenses (2) 10,338 1,504 29,639 5,441 Acquired in process research and development - - 17,000 - Non-GAAP operating income 96,297 $78,416 $263,223 $228,014   GAAP net income $76,738 $71,137 $193,147 $198,486 Stock-based compensation (1) 8,299 6,473 25,225 27,388 Amortization of intangible assets and acquisition related expenses (2) 10,338 1,504 29,639 5,441 Acquired in process research and development - - 17,000 - Taxes on stock-based compensation and amortization of intangible assets and acquisition related expenses (3)   (3,438)   (542)   (8,782)   (1,625) Non-GAAP net income $91,937 $78,572 $256,229 $229,690   GAAP Earnings per share (diluted) $0.34 $0.31 $0.85 $0.83 Stock-based compensation (1) 0.04 0.03 0.11 0.11 Amortization of intangible assets and acquisition related expenses (2) 0.05 0.00 0.14 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) (0.02) 0.00 (0.04) (0.00) Non-GAAP Earnings per share (diluted) $0.41 $0.34 $1.13 $0.96   Number of shares used in computing Non-GAAP earnings per share (diluted) 224,974 231,656 226,266 239,327   (1) Stock-based compensation: Cost of revenues $188 $88 $522 $257 Research and development 1,225 909 3,295 7,426 Selling and marketing 2,459 966 6,807 5,782 General and administrative 4,427 4,510 14,601 13,923 Total before taxes $8,299 $6,473 $25,225 $27,388   (2) Amortization of intangible assets and acquisition related expenses: Cost of revenues $7,154 $1,353 $20,570 $4,061 Selling and marketing 3,184 151 9,069 453 General and administrative - - - 927 Total before taxes 10,338 1,504 29,639 5,441   (3) Taxes on stock-based compensation and amortization of intangible assets and acquisition related expenses (3,438) (542) (8,782) (1,625) Total, net $15,199 $7,435 $46,082 $31,204 CHECK POINT SOFTWARE TECHNOLOGIES LTD. CONDENSED CONSOLIDATED BALANCE SHEET DATA (In thousands) ASSETS     September 30, December 31, 2007 2006 (unaudited) (unaudited) Current assets: Cash and cash equivalents $327,803 $519,443 Marketable securities 394,662 571,621 Trade receivables, net 130,264 141,881 Other receivables and prepaid expenses 23,950 22,408 Total current assets 876,679 1,255,353   Long-term assets: Marketable securities 482,364 558,874 Property, plant and equipment, net 56,853 47,192 Intangible assets, net 170,471 23,117 Goodwill 657,009 182,115 Deferred income taxes, net 4,806 6,977 Other assets 681 534 Total long-term assets 1,372,184 818,809   Total assets $2,248,863 $2,074,162   LIABILITIES AND SHAREHOLDERS’ EQUITY   Current liabilities: Deferred revenues $227,156 $204,149 Trade payables and other accrued liabilities 171,327 153,900 Total current liabilities 398,483 358,049   Deferred tax liability, net 33,775 - Accrued severance pay, net 5,360 4,580 Minority 447 -   Total liabilities 438,065 362,629       Shareholders’ equity: Share capital 774 774 Additional paid-in capital 448,653 422,381 Treasury shares at cost (848,752) (728,909) Accumulated other comprehensive loss (1,458) (6,293) Retained earnings 2,211,581 2,023,580 Total shareholders’ equity 1,810,798 1,711,533 Total liabilities and shareholders’ equity $2,248,863 $2,074,162 Total cash and cash equivalents and marketable securities 1,204,829 1,649,938 CHECK POINT SOFTWARE TECHNOLOGIES LTD. SELECTED CONSOLIDATED CASH FLOW DATA (In thousands)       Three Months Ended Nine Months Ended September 30, September 30, 2007   2006 2007   2006 (unaudited) (unaudited) (unaudited) (unaudited) Cash flow from operating activities: Net income $76,738 $71,137 $193,147 $198,486 Adjustments to reconcile net income to net cash provided by operating activities:   Depreciation and amortization of property, plant and equipment 1,602 1,501 4,546 4,246 Decrease (increase) in trade and other receivables, net 3,214 (5,598) 43,845 37,286 Increase (decrease) in deferred revenues, trade payables and other accrued liabilities (3,878) (1,479) (17,221) 4,654 Acquisition of in process research and development - - 17,000 - Amortization of intangible assets 10,338 1,504 29,639 4,514 Stock-based compensation 8,299 6,473 25,225 27,388 Deferred income taxes, net (7,467) 1,827 (15,863) 3,980 Net cash provided by operating activities 88,846 75,365 280,318 280,554   Cash flow from investing activities: Cash paid in conjunction with the acquisition of Protect Data, net (214) - (594,508) - Investment in property, plant and equipment (2,652) (1,905) (12,638) (41,915) Net cash used in investing activities (2,866) (1,905) (607,146) (41,915)   Cash flow from financing activities: Proceeds from issuance of shares upon exercise of options 7,954 6,111 22,889 46,559 Purchase of treasury shares (42,272) (201,440) (147,899) (403,798) Tax benefit related to exercise of stock options - - - 3,450 Net cash used in financing activities (34,318) (195,329) (125,010) (353,789)   Unrealized gain on marketable securities, net 2,991 7,852 6,729 1,857   Increase (decrease) in cash and cash equivalents, deposits and marketable securities 54,653 (114,017) (445,109) (113,293)   Cash and cash equivalents and marketable securities at the beginning of the period 1,150,176 1,726,067 1,649,938 1,725,343   Cash and cash equivalents and marketable securities at the end of the period 1,204,829 1,612,050 1,204,829 1,612,050