Check Point Posts Strong 4Q Profit; Sourcefire Deal Delayed

Profit for the quarter ended Dec. 31, 2005, totaled $89.2 million, or about 36 cents a share, on revenue of $156.1 million, compared with $76.4 million, or 31 cents a share, on sales of $143 million a year earlier, according to Check Point, which is based in Israel and has offices in Redwood City, Calif.

Earnings for the entire year rose 29 percent to $319.7 million, compared with $248.4 million for the prior year. The security technology vendor&'s sales climbed 12 percent during that time to $579.4 million from $515.4 million.

Check Point Chairman and CEO Gil Shwed said sales for the second half of 2005 were slower than he expected. Still, he called the fourth-quarter results "a good finish to the year 2005."

Strong sales in licensing subscriptions and IT services helped fuel earnings growth in the fourth quarter, as did brisk sales of Web security and VPN products plus several large orders of more than a half-million dollars, said Eyal Desheh, executive vice president and CFO.

Going into 2006, Check Point expects an average 14 percent growth rate in earnings, Shwed said. To help drive growth, Check Point must sharpen its focus on the small- and midsize-business market, he said, adding that the company recently took a step in that direction by partnering with D-Link on threat management products.

Another challenge for Check Point in 2006 will be its planned acquisition of Sourcefire, the maker of Snort intrusion-prevention products. Check Point unveiled the $225 million deal in October, but a longer-than-expected regulatory approval process may postpone finalization of the deal until the middle of the second quarter or later, said Shwed.

The delay of the Sourcefire deal prevents Check Point from being able to delineate the combined product road map, Shwed said. In general, many of the products from Check Point and Sourcefire will be integrated, he said, but details won&'t be given until the acquisition closes.

Shwed said he couldn&'t discuss what was slowing down the approval of the acquisition.

Sourcefire currently has a deal run rate of about $40 million to $50 million per year, but the company&'s contribution to Check Point's bottom line stands to be lower than that for the year, Shwed said. After the acquisition closes, Check Point expects Sourcefire&'s deal run rate to be about $20 million to $40 million per year, he said.

Sourcefire has a direct sales force, and "many named accounts" are serviced primarily by those reps, according to Shwed. Transitioning Sourcefire&'s sales model to Check Point's 100 percent indirect model will be accomplished as quickly as possible, he said, adding that many of Sourcefire's customers already have relationships with Check Point VARs.