Check Point Software Technologies Ltd. (NASDAQ:CHKP) Q4 2023 Earnings Call Transcript

Check Point Software Technologies Ltd. (NASDAQ:CHKP) Q4 2023 Earnings Call Transcript February 6, 2024

Check Point Software Technologies Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Kip Meintzer: [Call Starts Abruptly] …Fourth Quarter and Full Year Financial Results Video Conference. I’m Kip Meintzer, Global Head of Investor Relations. And joining me today are Founder and CEO, Gil Shwed; and our Chief Financial Officer, Roei Golan. Before we begin, I’d like to remind everyone that this conference is being recorded and will be available for replay on our website at checkpoint.com. During the formal presentation, all participants are in listen only-mode to be followed by a Q&A session. During the presentation, Check Point’s representatives may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.

Factors that could cause actual results to differ materially include, but are not limited, to those discussed in Check Point Software’s latest filings with the Securities and Exchange Commission. Any forward-looking statements made speak only as of the date hereof, and Check Point Software undertakes no obligation to update publicly any forward-looking statements. In our press release, which has been posted on our website, we present GAAP and non-GAAP results, along with a reconciliation of such results as well as the reasons for our presentation of non-GAAP information. If you have any questions after the call, please feel free to contact Investor Relations by e-mail at kip@checkpoint.com. Now I’d like to turn the call over to Gil Shwed.

Gil Shwed: Hi, everyone, and I’m pleased to see you all. I want to start with this picture, and then I’ll turn it into the financial results. But I’ve started my journey in Check Point exactly 31 years ago, just before we started the company in February of 1993. And since then, it’s been an amazing journey and amazing growth, which is not over. And I just want to — I think you’ve all read the announcement today that I intend to transition my role into an Executive Chairman, which means that I’m going to — I want to be super involved in Check Point, super involved in the future of Check Point and shift a lot of my attention from the day-to-day management of the company into shaping the future of the cybersecurity market and Check Point, in particular.

I think I’ve gone a long way. I didn’t start quite that, but I started when I was 24 years old. I’ve grown a lot with Check Point. I think I’ve changed my — I’ve learned a lot. I’ve changed my management style, and I think I’m ready for that next step, which is moving to an Executive Chairman role. So I want to thank you all for your support. It’s on — we are not doing anything today. We’re actually starting the journey. And I think starting tomorrow, we will start a more thorough succession planning process. We will start search for replacement for my current role as CEO, which will take anything from — again, we may be lucky and it will be very short, but to find the right person, to find the right women or men that can be the Check Point CEO, can take — usually would take anything from six months to two years.

We are all in Check Point super-energetic about 2024. I’ll talk more about that in the slides later, and about what’s going on. And I’m very excited to start the year and also start the journey into finding a replacement and — in the future, and I hope it will be in the near future to step into the Executive Chairman role. So with that, I think I’m ready to move the torch to Roei that will take us through the numbers, and then I’ll talk more about the vision, the business trends that we’ve seen this quarter — this year.

See also 20 Best Small Towns in Florida to Retire and 15 Reasons Why Millionaires Think They’re Middle Class.

Q&A Session

Roei Golan: Thank you, Gil, and thank you, everyone, for joining the call today. So I’m excited to be with you today and begin the review of the fourth quarter for 2023. We had a strong quarter, with operating income of $309 million, representing a growth 7% year-over-year, with a very strong operating margin of 47% — non-GAAP operating margin of 47%. Our revenues reached $664 million, a $3 million above the midpoint of our projection, while our non-GAAP EPS was $2.57, $0.02 above the top end of our projection. As for the full year, our revenues — as portfolio of 2023, our revenues reached $2,450 billion, representing a growth of 4% year-over-year, while our EPS reached $8.42, a 14% growth year-over-year. Actually it’s the highest quarter to have an EPS since 2011.

Moving to the revenues and other and deferred revenues and billings. As I have indicated, our revenues grew by 4%. Our deferred revenues reached $1,908 billion, representing an increase of 2% year-over-year, while our short-term deferred revenues reached $1,440 billion, a growth of 4% year-over-year. Our calculated billing reached $862 million, while our current calculated billings reached $831 million. And same as I mentioned in prior quarter, actually since, I think, the beginning of 2023, due to our interest rate environment, we saw also in this quarter a few customers that are willing to pay upfront for multiyear deals, which was already in short-term billing duration. Also in Infinity deals, our billing terms are more flexible. We have much more Infinity — the Infinity becoming more and more significant business, and the billing terms are much more flexible there.

So some of the annualized bookings that we’ll show you in the next two slides are not built yet, and its — but they are included in our backlog. The remaining performance obligation, which actually is also our backlog, is approximately — it’s approximately $2,250 million — $49 million, representing a growth of 5% year-over-year. So our revenue growth was driven mainly by subscription revenue. We see consistent strong subscription revenues growth of 15% this quarter to $266 million. This call is mainly driven by strong performance, a strong demand for our Infinity platform, our Infinity consolidated platform and Harmony E-mail. We continue to see strong momentum for both of them, and that’s going — that’s what we see here, the 15% growth in the last quarter.

Moving into the — something that I want to show you this quarter, we did see a real positive turnaround this quarter. I think what we’ve seen is something — it’s telematic that we are following, but this is the new business annualized bookings that we’ve seen in this quarter. You’d see double-digit new business growth across all geo, by the way, it’s not only specific geo. We did see double-digit new business growth in all geos. We do see the turnaround — the real turnaround that we started to see in Q3. We mentioned it in Q3. In Q3, it was still approximately flat. In Q4, we did see a really positive turnaround with double-digit growth. And as I mentioned, we expect it to be translated into billings and revenues in the next few quarters.

As indicated, we continue to see strong adoption for our Infinity platform. Infinity consolidated platform continue to flow in an accelerated way to our revenues, with a strong double-digit growth year-over-year. In this quarter, the revenue on Infinity family keep exceeding the 10% of the total revenues, and we can see more and more customers — also new customers, adopting our platform, which enhancing their needs under one umbrella of product and services. As for the revenues by geography, we saw strong demand in America. We see 42% of the total revenues came in America. It represented double-digit growth in revenues in America, mainly driven by Infinity’s strong demand for Infinity there and Harmony E-mail business. 48% of the revenues came from EMEA, and the remaining 10% came from Asia Pacific.

Important to say, as I mentioned in the previous slides, that also the new business bookings — annualized booking in these geos went up double digits. So I think it’s a very good positive momentum that we’ve seen in Q4. And now let’s move to the P&L this quarter. Our gross profit increased to $591 million, representing a gross margin of 89% compared to 88% last year. Our operating expenses increased by 4%. The increase was mainly as a result of our continuing investment in our workforce, our recent acquisition and also investment in cloud infrastructure and marketing. Non-GAAP operating income continues to be strong at $309 million, a 7% growth year-over-year and represented a 47% operating margin compared to 45% operating margin last year.

To explain, the improvement in operating margin is a result of 1.5 points better margin that we can see here. Another 1.5 points benefit from FX, $200, mainly around — against the shekel, which offset by approximately 2% headwind related to our recent acquisition. So that’s explained the improvement that we see here in the operating margin this quarter. As for the financial income, we — our financial income this quarter reached $18 million as we keep investing in higher interest rates over time. Our non-GAAP tax rate for this quarter was around 9% due to — up to our tax provision and deferred taxes. We do see that the tax expenses in this quarter were significantly higher than last year, but it’s mainly because of tax accounting in the end.

And you’re going to see it in the next few slides that the effective tax rate for the full year is similar in 2023 compared to 2022. As for the GAAP, the non-GAAP net income, it was $298 million or $2.57 per diluted share, posing the top end of our projection by $0.02 and represented 5% growth year-over-year. Our GAAP net income was $249 million or $2.15 per diluted share, 2% decrease year-over-year, and it’s mainly due to higher amortization related to our recent acquisition of mainly of Perimeter 81. Moving to our cash flow and position. So our cash balances as of the end of the year was $3 billion, same level as we had in Q3. Our operating cash flow was strong at $236 million this quarter, representing a growth of 3% year-over-year. We also continued our buyback program and purchased 2.2 million shares of $313 million at an average price of $142 per share.