Check Point Software Technologies Ltd. — 2015 Form 20-F
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter filing; the supplied text does not provide separate Q4 financial results. Financial statements are presented in U.S. dollars and prepared under U.S. GAAP.
Business context
Check Point develops and sells network, endpoint and data security products, subscriptions, software updates and maintenance. Sales are made worldwide through channel partners; the company reports one operating segment. Its 2015 product initiatives and acquisitions focused on threat prevention, mobile security and cloud security.
Key financial metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Revenue | $1,629.8 million | $1,495.8 million | +9% |
| Operating income | $839.7 million | $801.1 million | +5% |
| Net income | $685.9 million | $659.6 million | +4% |
| Diluted EPS | $3.74 | $3.43 | +9% |
| Operating margin | 52% | 54% | Down 2 percentage points |
| Net margin | 42% | 44% | Down 2 percentage points |
| Operating cash flow | $946.7 million | $785.9 million | +20% |
Revenue mix: Products and licenses were $555.8 million (+7%); subscriptions were $318.6 million (+20%); software updates and maintenance were $755.4 million (+6%). Subscription growth reflected continued customer adoption of Blade Packages. Maintenance growth came mainly from renewals and new contracts.
Costs and taxes: Operating expenses rose to $790.1 million from $694.8 million. Selling and marketing increased to $359.8 million, mainly due to hiring and compensation; R&D increased to $149.3 million. Stock-based compensation was $76.3 million, versus $63.2 million. The effective tax rate rose to 21.5% from 20.5%, largely reflecting higher Israeli statutory and Preferred Enterprise tax rates.
Liquidity and capital: Cash, cash equivalents, short-term deposits and investments totaled approximately $3.615 billion at year-end, versus $3.683 billion a year earlier. Working capital was $679.0 million; total assets were $5.070 billion and shareholders’ equity was $3.532 billion. The balance sheet presented does not list borrowings; verify the full financial statements for any debt or financing obligations. Net cash used in investing was $152.9 million, including $96.5 million paid for acquisitions; capital expenditures were $17.3 million. Net cash used in financing was $863.5 million, primarily reflecting share repurchases.
Material changes and notable items
- Revenue increased 9%, while net income rose 4%; operating margin declined from 54% to 52%, which management attributed mainly to compensation costs associated with workforce growth.
- Operating cash flow increased to $946.7 million, supported in part by higher deferred revenue and accrued liabilities. Deferred revenue reached $905.8 million, up from $784.0 million.
- The company repurchased approximately 12.0 million shares for about $985.7 million in 2015. Outstanding shares fell to 174.9 million from 183.8 million at year-end 2014. The board authorized an additional $1.5 billion repurchase program, capped at $250 million per quarter.
- Hyperwise and Lacoon Mobile Security were acquired in 2015; acquisition-related cash payments were $96.5 million. Goodwill increased by $84.1 million to $812.0 million. Management reported no goodwill or long-lived asset impairment.
- Financial income, net, was $34.1 million, up from $28.8 million. The company reported no other-than-temporary impairment of marketable securities in 2015.
Outlook, risks and contingencies
- Outlook: The filing provides no specific revenue, earnings or margin guidance. Management said available liquidity should be sufficient for capital expenditure requirements over the next 12 months. The company did not intend to pay dividends in the near term.
- Concentration: Two distributors accounted for 38% of 2015 sales; the ten largest accounted for 53%. The company has no minimum purchase commitments with distributors. Network security gateways remain a major product revenue source.
- Tax: A $284.1 million liability for uncertain tax positions was recorded at year-end; settlement timing and ultimate amounts were not reasonably estimable. A 2013 Israeli tax settlement requires approximately $111 million of qualifying Israeli investment over five years, or payment of any shortfall with indexation and interest. The filing says a loss beyond the accrued liability for other litigation was not considered probable.
- Market and execution risks: The filing highlights intense competition, pricing pressure, rapid technology and threat changes, product defects or security failures, and dependence on successful product development and commercialization. General economic weakness could delay or reduce customer spending.
- Other exposures: Currency fluctuations affect costs; management estimated that a 10% weakening of the U.S. dollar against relevant expense currencies would increase 2015 operating expenses by $32 million, before considering hedging effects. Other risks include investment-market and interest-rate exposure, international operations and export controls, political and military conditions in Israel, and tax-benefit eligibility.
Important facts for investors to verify
- Review the full audited statements and notes for cash-flow drivers, investment maturities and credit exposures, and any debt or other financing obligations.
- Track distributor concentration, renewals and deferred revenue, and whether subscription growth continues to offset slower product and maintenance growth.
- Assess whether expense growth—particularly selling and marketing, hiring-related compensation and stock-based compensation—continues to pressure operating margins.
- Monitor the $284.1 million uncertain-tax-position balance, the Israeli investment commitment, and developments in tax audits and litigation.
- Check subsequent filings for repurchase activity, share-count changes, dividend policy and any quantified forward guidance.