Check Point Software Technologies Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021; filed April 14, 2022. This is an annual report, not a standalone fourth-quarter filing, and the supplied text does not provide separate Q4 results. Figures are in U.S. dollars unless stated otherwise.
Business context
Check Point develops and supports cybersecurity products and services spanning network, cloud, endpoint, mobile and email security. It sells primarily through channel partners. Management emphasized a prevention-first, consolidated security strategy through its Quantum, CloudGuard and Harmony offerings, with growing subscription sales.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $2,166.8 million | $2,064.9 million | +5% |
| Products and licenses | $513.9 million | $513.6 million | Approximately flat |
| Security subscriptions | $755.2 million | $671.1 million | +13% |
| Software updates and maintenance | $897.7 million | $880.2 million | +2% |
| Operating income | $907.5 million | $904.2 million | +0.4% |
| Operating margin | 42% | 44% | Down 2 percentage points |
| Net income | $815.6 million | $846.6 million | Down about 4% |
| Diluted EPS | $6.08 | $5.96 | +2% |
| Net cash from operations | $1,203.9 million | $1,161.0 million | +4% |
Cost of revenue was $258.1 million, implying gross profit of approximately $1,908.7 million and a gross margin of about 88%. Net margin was approximately 38%. Reported net income fell despite higher revenue, mainly as financial income declined to $42.1 million from $66.6 million and income taxes increased to $134.0 million from $124.2 million. The effective tax rate was 14%, versus 13%.
Cash, cash equivalents, short-term bank deposits and marketable securities totaled $3,783.4 million at year-end, down from $3,999.6 million. Current assets were $2,337.9 million and current liabilities $1,712.1 million. The balance sheet does not show borrowings; liabilities primarily include deferred revenue and tax accruals. Deferred revenue was $1,707.1 million, up from $1,481.9 million. Remaining performance obligations were $2,013.6 million, of which about $1,366.5 million was expected to be recognized within 12 months.
Investing activities used $75.3 million, including $219.7 million net cash paid for acquisitions; capital expenditures were $15.9 million. Financing activities used $1,112.4 million, largely reflecting $1,299.5 million of share repurchases, partly offset by $194.0 million of proceeds from equity awards. The company repurchased approximately 10.9 million shares during 2021.
Material changes and notable items
- Subscription revenue was the principal growth driver, increasing 13%; product and license revenue was essentially unchanged.
- Research and development expense rose to $292.7 million from $252.8 million, and selling and marketing expense rose to $597.8 million from $569.9 million. Management cited higher compensation, headcount, cloud infrastructure costs and foreign-exchange effects.
- Hardware product costs increased amid raw-material cost increases and supply-chain shortages. The company reported expediting shipments, but also warned that delivery delays were occurring.
- Avanan, a cloud-email security company, was acquired in September 2021 for approximately $227.1 million. The acquisition added $194.2 million of goodwill. Spectral was acquired in February 2022, after the reporting period.
- The company extended its repurchase program by $2 billion in August 2021, with authorized purchases of up to $325 million per quarter. Management stated it did not intend to pay dividends in the near term.
Outlook, risks and contingencies
The filing does not provide quantified revenue, earnings or margin guidance. Management described demand and results as subject to uncertain economic and industry conditions, including inflation, supply constraints, competition and the continuing effects of COVID-19. It highlighted risks from intense competition and pricing pressure, reliance on a small number of distributors, dependence on limited hardware suppliers, cybersecurity threats and product defects, talent competition, foreign-exchange and investment-market movements, tax disputes, and geopolitical and operational risks in Israel. The Russia-Ukraine conflict and related sanctions and export controls were identified as potential risks; sales in Russia and Belarus were described as not significant relative to the overall business.
The company reported ongoing lawsuits and tax disputes in the ordinary course of business. It stated that losses beyond accrued liabilities for disclosed legal claims were not considered probable. Unrecognized tax benefits were $469.5 million at year-end, with $61.1 million potentially subject to adjustment within 12 months. No significant impairment charges were recorded in 2021, and the auditors issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the correct FY2020 net income comparison: the audited statements and results table report $846.6 million, while one narrative passage says $846.1 million.
- Review the full audited statements and notes for the composition, duration and valuation sensitivity of the $3.8 billion cash and investment portfolio, and the absence of reported borrowings.
- Assess the sustainability of subscription growth and deferred revenue, alongside distributor concentration: the two largest distributors generated about 40% of 2021 sales.
- Monitor supply-chain availability, hardware costs, currency exposure and the effect of employee-cost growth on operating margins.
- Evaluate the terms and integration progress of Avanan and the post-period Spectral acquisition, as well as the scale and impact of continued share repurchases.