As Expected, Check Point 1Q Earnings Fall

Check Point Software Technologies on Monday reported declined first-quarter earnings, which the company earlier said it expected in the wake of its failed attempt to acquire security vendor Sourcefire.

Check Point posted a profit of $61.6 million, or 25 cents per share, on revenue of $133.6 million in the first quarter, down 3 percent year over year. The company, which is based in Israel and has offices in Redwood City, Calif., also said the first-quarter 2006 numbers fell vs. fourth-quarter 2005 results, which came in at earnings of $89.2 million, or about 36 cents per share, on revenue of $156.1 million.

Check Point had issued an earnings warning on April 4 in part because of its decision to forgo its deal to buy Sourcefire, the maker of Snort intrusion-prevention products. Delays caused by federal regulators examining the acquisition moved Check Point to scrap the deal. Before that, Check Point expected first-quarter earnings of 32 cents to 34 cents per share.

Also affecting earnings was a change in the way Check Point sells its products, said Vice Chairman Jerry Ungerman. Check Point is adjusting to a sales model in which it sells annual subscription licenses rather than perpetual licenses, and the shift to a more annuity-based revenue stream makes it appear that sales are lower than they actually are, he said. It's also taking customers slightly longer to replace their point products with Check Point’s integrated offerings, such as SmartDefence, he added.

"We still believe we can and will grow product revenue," Ungerman said.

Already, more than 70 percent of Check Point's installed base is under a subscription model, said Eyal Desheh, executive vice president and CFO.