Check Point CEO Confident That Good Results Will Come From U.S. Sales Force Reorg

Check Point Software's push to provide U.S. clients with broader sales coverage and more segmentation by customer type is taking a while to yield results.

The San Carlos, Calif.-based enterprise security vendor said it has brought in many new people in both management and sales rep positions during the spring and summer months to boost its support for the channel and other client segments. But those changes have exposed Check Point Software Technologies to greater execution risk, according to CEO Gil Shwed.

"For some or many of these people, it takes time to ramp up to the level of productivity and results that we would expect. It takes a little bit longer than I would like it to happen," Shwed told Wall Street analysts Tuesday. "But I think we are building the right structure and the right sales force."

[Related: Check Point Execs Say They Don't See The Same Sales Headwinds As Palo Alto Networks]

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Check Point's sales and marketing expenses in the quarter increased by just 1.5 percent on a year-over-year basis to $106 million, well below the double-digit increases recorded in previous timeframes. That's due primarily to the company not hitting its bookings targets, which in turn resulted in lower commission compensation for the sales force, according to CFO and COO Tal Payne.

The headcount and salaries paid to Check Point's sales and marketing staff increased in the quarter, though, Payne said, with the company both adding net new employees as well as filling vacancies in the departments. And in time, Shwed said both the new and reassigned members of Check Point's U.S. sales force should reach their full potential.

"We didn't lower our investment on that," Shwed said. "Quite the contrary."

Check Point will likely spend the remainder of 2017 absorbing the changes it has already made to its sales force, Shwed said, with more changes likely to come in 2018. Shwed said he feels very positive about both the company's leadership team and market potential.

"For this year, we've built the infrastructure," Shwed said. "It just takes some time to see the results from the people and the positions and the areas that we've introduced and implemented."

Check Point's revenue in the quarter ended Sept. 30 climbed to $454.6 million, up 6.3 percent from $427.6 million the year prior. That edged out Seeking Alpha's estimate of $449.2 million.

Net income jumped to $192.7 million, or $1.16 per share, up 13.6 percent from $169.7 million, or $0.99 per share, last year. On a non-GAAP basis, earnings came in at $215.3 million, or $1.30 per share, up 11.3 percent from $193.5 million, or $1.13 per share, the year before. That beat Seeking Alpha's projection of $1.24 per share.

Check Point's stock price fell $8.71 (7.40%) to $109.00 in after-hours trading. Earnings were announced after the market closed Tuesday.

Check Point's software updates and maintenance sales jumped to $205.6 million, up 7 percent from $192.1 million last year. The company's products and licenses practice saw sales tumble to $128.7 million, down 6 percent from $136.9 billion the year prior.

Most of Check Point's growth, though, was driven by software blades subscriptions, with year-over-year sales jumping to $120.3 million, up 22.1 percent from $98.6 million last year due in part to these subscriptions being bundled into new product lines.

The company saw decreased increased in large deals, with customer transactions worth more than $1 million dropping to 60 from 65 the year prior due entirely to diminished activity in the United States. Seventy-four percent of Check Point's client deals are worth more than $50,000, according to Payne.

For its next quarter, Shwed said Check Point expects to deliver earnings of $1.45 to $1.55 per share on sales of $485 million to $525 million.