Check Point Software Technologies Ltd. (NASDAQ:CHKP) Q2 2020 Earnings Conference Call - Final Transcript

Jul 22, 2020 • 08:30 am ET


Check Point Software Technologies Ltd. (NASDAQ:CHKP) Q2 2020 Earnings Conference Call - Final Transcript


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Tal Payne

(starts abruptly) expenses saving relates mainly to employees moving to work from home, the lower travel and entertainment, and the transition to virtualized events versus in-person one. Those expenses are expected to return gradually as more countries are returning to somewhat normalized business practices like travel, face-to-face meeting and partial return to office work.

Our financial income this quarter was $19 million. Interest rates in the US sharply dropped during the quarter. As a result, the newly purchased marketable security yields is around 0.5% while previous yields were above 2%. In addition, as a result of the interest rate decline, we see many bonds being prepaid ahead of the scheduled maturity date. The full effect this quarter was a gain of $2 million from prepaid and sold bonds, offset by a reduction of $2 million in interest income. Going forward, as more bonds mature, prepaids are sold, interest income will continue to reduce. Next quarter financial income is expected to be around $14 million to $15 million, and continue to drop in about $1 million to $2 million a quarter. Actual results obviously depend on future prepayments and sales of the bond, which is impossible to predict at this point of time.

Effective non-tax rate for this quarter was 17%, in line with our expectations. GAAP net income was $196 million or $1.38 per diluted share. Non-GAAP net income was $225 million or $1.58 per diluted share, an increase of 15% from the second quarter last year. The growth is related to the higher net income on the one hand and the reduction in our diluted outstanding shares. This quarter, our outstanding shares were 142.6 million, lower than planned. As share price decreased during the quarter, we were able to buy more shares in our repurchase program and fewer options added to the outstanding shares. Going forward, we expect the diluted outstanding number of shares to be around 142 million in Q3 and 140 million in Q4 as share price increased in the last few weeks.

Our cash balances as of June 30 were $3.096 billion -- sorry, $3.960 billion. Operating cash flow this quarter was very strong, reaching $252 million, representing 8% increase year-over-year. The increase is attributed to strong collections, lower expense levels due to the COVID-19, and the hedge on our balance sheet. Consistent with the macroeconomic trends, we see some increase in some -- when customers request for billing or payment concessions. We are committed to helping our customers to navigate this pandemic and use our financial strength to aid in their success.

As a reminder, we hedge our balance sheet against currency fluctuations. Hedge affects our cash flow with minimal effect on our P&L, as intended. During the quarter, the dollar weakened against the Israeli shekel, resulting in a hedge income of $9 million in the cash flow versus $3 million last year. Again, no material effect on the P&L.

Our operating cash flow, net of tax and hedge, increased by 6%. We had $46 million