Krause B Fund Research j

Fall 2020 November 17, 2020

Check Point Software Technologies Ltd. Stock Rating: (: CHKP) Buy

\. Analysts

Kyle Witt Jiamin Xu Nick Mirabito Xingyun Ding Yi-Fei Li kyle [email protected] [email protected] [email protected] [email protected] [email protected] Investment Thesis Target Price: $150-$186

We recommend a buy rating for Software Technologies Ltd. Check Point will keep growing during the pandemic hard time as it continues product innovation and DCF $186.48 has high cash reserves. Check Point’s strategy of exploring customers all over the world DDM $149.51 and merging acquisition to make company have larger market share will drive this growth. PE (EPS21) $173.45

The stock offers between 25.99%-57.14% upside from current levels. Drivers of Thesis: -We expect substantial growth in the revenue from the security subscriptions. In their Price Data Q3 report of 2020, Check Point released a new cloud-based product, which may have Current Price $118.67 positive impact on its revenue on products and licenses segment in 2021 and future years 52 Week High $130.98 We expect that this segment will continue to experience a growth of 7% to 8%. and keep increase for the future 5 years. Also, we anticipate the total revenue growth will increase 52 Week Low $80.06 4% for year 2021 and maintain a stable increase of about 1.5%. -We anticipate a decline of the product and licenses segment. For this segment, we Key Statistics forecast it has a continuous decline rate from 3% to 1%. This will actually be beneficial Market Cap 16.64 B for Check Point as products & licenses has the lower margins. Customers will be switching Shares Outstanding 145.47 M to a subscription model which has higher margins. Forward Price/Earnings 21.12x - Check Point’s market power increases as the acquisition of Odo security and Beta 0.69 strategy to corporate with other companies to reach new customers. Attracting more customers help Check Point increase its product updates and maintenance revenues, as we WACC 4.48% forecasted for this segment, it will have a growth rate about 1% to 5%. EPS 2019 $5.48 Risks if Thesis: Dividend Yield (TTM) N/A -The COVID-19 leads to volatility in the markets and low consumption globally. The pandemic is getting severe in Dec and beginning of 2021. Releasing of new product may Profitability not get the predicted sales and lower the revenues. ROE 23.1% - Stronger competitors entered the security market and that threatens the market ROA 14.3% share of Check Point. entry into IT security brings competition to the market. Profit Margin 89.2% Large companies like it, have more financial base and customer bases, which can let it sell similar product as lower price to compete with Check Point. Company Description 12 Month Performance Check Point Software Technologies Ltd. Engages in the development and market of software and hardware solutions for information technology security. Its products include threat prevention, next generation

firewalls, , and security management. Its solutions cater to the following: point of sales systems, automated

teller machine, private and public cloud, and telecommunications providers. The company S&P: Blue line CHKP: Grey was founded in 1993.

Executive Summary Our team recommends a BUY rating for Check Point Technologies Ltd (NASDAQ: CHKP) for the Krause Fund. Check Point company is benefited from increase in demand of cloud and mobile services security protections as well as remote access security protections during the pandemic, so we have positive view of Check Point’s Looking forward in the next 6 months we expect the 10- stock price. Check Point was the leader of cybersecurity year treasury yield to be in the range of 0.8% - 1.0%. We technology companies, which had the most updated believe that the Fed will continue to be actively buying security technologies to protect lots companies from data bonds in the next few months to keep rates low with the damage and leaking. Although they recently lose market lack of fiscal stimulus, the Fed will try to keep the share and was beaten by and , economy going. In the next 2-3 years we believe rates will we believe Check Point will continually growth since stay in the 0.8% - 1.0% range for the 10-year treasury. We their new acquisition of Odo Security, new introduction believe this because the economy won’t go back to pre- of IoT Protect solution and new 28600 Quantum Covid levels within a couple months and that it’ll take Hyperscale Security Gateway will strengthen their ability years. With a longer recovery the Fed will continue to against the most advanced cyber-attacks. According to buying bonds to keep interest rates low. Another thing our forecasted model, we believe the Check Point’s that will keep rates low is that many countries have revenue will rise at least 1.72% from 2019 to 2020. And extremely minimal to negative yields on government the revenue will rise 4.06% in 2021. The forecasted bonds which will attract foreign investors to buy U.S. revenue makes our target stock price rise 25.99%-57.14% bonds. We expect HQM yield to increase to 2.1% - 2.3% to the range of $149.51-$186.48. as more companies are issuing debt to take advantage of the low rates. In the next 2-3 years we expect HQM yields Economic Outlook to be between 1.7% - 1.9% because the low rates in Treasury notes will have investors buying corporate bonds as they search for yield. Interest Rates The low interest environment will have positive and The current long-term treasury yield environment can be negative effects on Check Point Technologies. Check seen as one component driving the stock market along Point will benefit from low Treasury yields as that will with the technology sector. Long-term treasury lower their cost of equity which increases the present yields influence the borrowing rates for corporate value of their future cash flows and increases value of the bonds which affects a company’s cost of capital. With the firm. Check Point will not benefit from refinancing debt lower cost of capital this makes equities look more as they have no debt on the balance sheet. The low interest attractive to investors. rates will also hurt Check Point. In 2019 nearly 10% of Currently the 10-year treasury is yielding 0.88% which is Check Points net income was from investment income close to a record low of 0.52% which occurred in the and nearly 8% in 2018. The low interest rates will hurt beginning of the pandemic.27 The 10-year high quality both financial and net income for at least the next 2-3 market (HQM) corporate bond par yield is at 2.00% years. coming off its low of 1.93%.26 Both treasury and corporate bonds are yielding well below their historical Consumer Confidence average of 4.41% and 6.42% over the past 50 years.25 Consumer confidence survey is the leading indicator of consumer spending based on all consumer’s confidence in the economy, labor market and their own finances. Consumers are more inclined to spend money when they feel good about the economy. Consumer confidence survey is an important indicator because it shows willingness to purchase products based on current economy. Consumer confidence survey is important for the information technology sector because confident consumers will purchase technology products if they are to October 2020. The CPI for all items less food and confident with current finances and job security. energy increased 1.6% over the past 12 months. The CPI for food increased 3.9% and energy prices fell 9.2%. CPI is the most important indicators of inflation rate, which measures changes in individual’s living cost. CPI includes sampling of 200 types of goods and services (AAII, 2020). Changes in CPI may affect monetary policy, which will significantly affect the price of stock market as well as price of stock in technology sector (AAII, 2020). The shutdown of economy significantly disrupts global supply chain. The supply chain of technology products in early moth of the pandemic disrupted by shutdown of economy. Apple announced its The Consumer Confidence survey had slowly been expected earnings will be lower than its previously rebounding from all-time lows during the Financial Crisis expected because of a constrained supply chain and large of 2009 and reached all-time highs starting August 2016 decrease in demand in Chinese market. Changes in CPI with a long-term average of 100. The Consumer and global supply chain will affect customers’ willingness Confidence Survey had a drastic decrease in 2020 likely to buy technology products, as well as investors’ due to the COVID-19 pandemic. The current Consumer willingness of investing in technology industry. If the CPI Confidence Survey currently 84.8 for August 2020 which increases a lot, people may not want to spend much is slightly down from 94.7 in July 2020.23 money on technology products. The decrease of revenue Consumer Confidence had a sharp decrease beginning may result decrease of technology stock prices. February 2020 when COVID-19 shutdowns began. According to the U.S. Bureau of labor statistics (2020), Consumer Confidence reached five-year low in April the CPI for all items increased 1.2% from October 2019 2020. Increased unemployment affected consumer’s to October 2020. The CPI for all items less food and confidence in the economy and labor market and lowered energy increased 1.6% over the past 12 months. The CPI their willingness to spend money on products. Consumer for food increased 3.9% and energy prices fell 9.2%. Confidence increased in June 2020 because stay-at-home orders were lifted, and unemployment rate decreased. Consumers felt more confident in the economy because they were returning to work. Consumer Confidence has been decreasing since June 2020 because number of COVID-19 cases has been rapidly increasing. We believe this is scaring consumers again because there may be another shutdown of the economy causing uncertainty for consumers. We think that the Consumer Confidence will continue to decrease by 7 points each month until a vaccine is found and widely administered. We think it will decrease by 7 points each month because that has been the decrease for each of the past three months. We think the Consumer Confidence could continue to decrease for the next 6 months if unemployment rates stay high and no stimulus benefits are disbursed. We think that over the next 2-3 years that the Consumer Confidence will still be below the average of 100 because the all-time average monthly growth is only 1.3%.23

Consumer Price Index (CPI) According to the U.S. Bureau of labor statistics (2020), the CPI for all items increased 1.2% from October 2019 We believe the energy price will increase with the From the revenue stream of Check Point, in year 2019 recovery of energy consumption in the next six months. about 50% of its revenue came from foreign countries Food prices will continuously increase because the outside US, which means that the economy situation of negative effects of the COVID-19 still exist. Because we other countries also affects Check Point’s performance. think prices in core categories will increase, we believe For foreign countries that also suffered from decreasing that the CPI will increase in next 6 months. In short term, GDP will produce negative impact on the operation of we think CPI for all items will rise to the range of 1% - Check Point. Companies which have already ordered or 1.5%. In long term, we believe CPI for all items will increase to the range 1.5% to 2.5% when the vaccine signed contracts with Check Point for their security appears. We think the normal range is 1.5% to 2.5% service products will be prevented from signing another because the average of CPI for all items in past 20 years year to continue to receive Check Point’s services. is 2.12%. The increase of CPI may decrease the sales of Compared with the prior year, its subscriptions expanded technology products. However, because of remotely work by 10%, which it’s used to have average 13%. We expect environment during the pandemic, the demand of security its security subscription will be around 8% in next two software will increase, which has positive effect for quarters due to the expansion of COVID-19 and increases technology companies which offers security software and to at least of 13% in 2021. service.

Unemployment Rate

GDP Growth Unemployment Rate is an important indicator which The economic growth will be lowered down a bit in the could not only impact the technology sector but the whole end of 2020 but bounce back in quarter 1 and quarter 2 in stock market. Income from employment is the key source 2021. The real GDP annualized rate is 33.15% in quarter of primary income of U.S. residents 20. High 3 of 2020 by comparing with second quarter is - 31.4%. unemployment rate represents more people are relying on There is a huge increase in GDP growth rate. The boosts social security and they typically do not have enough cash of economy are benefit from the reopen of businesses and flow to purchase goods. activities that had been delayed due to COVID-19. Since the COVID-19 pandemic is getting more severe in 2020 The U.S. unemployment rate has been declining during winter, for our prediction, the economic growth probably the past few years. However, it reached a historical high will slow down to annualized real GDP of 25%.22 during the 2020 Covid-19 pandemic. From 1948 to 2020, the highest and lowest unemployment rate is 14.7 and 2.5.

However, the vaccine is coming soon, we expect the GDP growth rate will maintain 2% increase as before. We forecast that the growth in software will be around 2% which is slightly lower than average which is 3.9%, but We believe the unemployment rate will keep declining would be higher after quarter 2 of 2021, when the slowly in the next few months as the world is adopting to COVID-19 is under control.16 Our expectation for the virus. According to Trading Economics, the rate is Software Publishing in the US industry will increase expected to be recovered to 8.4% by the end of the year. because of the increases mobile internet connections and As the Cov-19 vaccine is expected to be introduced in smartphone ownership rates. All of these factors will early 2021, we believe that the unemployment rate will inspire the software industry perform better and gain drop down to 6% by the end of 2021. higher market shares. For technology sector, the cost replacing an employee is very high when they will need to rehire or replace workers after the economy starts to open up according to Fast Company. However, we believe this is not a problem for Markets and Competition

Check Point because the nature of their business allows them to run the company online. Check Point Software Technologies company is in information and solution industry. Its

products include threat prevention, next generation Capital Markets Outlook firewalls, mobile security and security management. Its products can apply to private and public cloud, point of We believe that the capital markets will continue to rise sale systems, automated teller machines and in the future. We see key economic variables improving telecommunications providers. Network security solution which increase investors risk tolerance and have them industry is the sub-industry of software industry, which investing in equities. With the recent approval of a provides products such as threat prevention, firewalls, Coronavirus vaccine we see life going back to normal for mobile security, and cloud security. Because of remotely many people in the next year or so which will help work environment during the pandemic, the demand of improve businesses economic health. We also believe network security increases a lot. The expected compound with the low interest rate environment that it will drive annual growth rate (CAGR) is 10.0% from 2020 to 2027 investors dollars in equities. (Cyber Security Market Analysis Report, 2020). Network security has become vital, which will result the rapidly Industry Analysis growth in the network security industry, as well as competition. However, the increased competition may cause price reductions and profit margin decrease, which Industry Description Software industry consists of one part of computer programming activity called system software that is traded between software producing organizations and application software for individual or corporate to use. System software could help other software operate, such as programming software, security software. Application software are designed for users like us to provide convenience and efficiency, for example, the communication apps provided the remote meeting function. Check point is in the cybersecurity industry, reduces the net income and loss market share. which is under the software industry, which protects the networks, healthiness of devices, data and important information from being hacked. Companies produce The major players in the network security market includes cybersecurity products are involved in the software Palo Alto Networks, Fortinet, Juniper Networks, Leidos industry provide security enhancement to customer and Holdings, Inc. and Cisco. Check Point also competes with corporations. As more mobiles and laptops are used, Microsoft Corporation, McAfee, Hewlett-Packard companies are devoted into develop application software Enterprise and FireEye. Inc with some specific products. to fulfill the needs of customers. Companies produce Some large companies such as Microsoft Corporation and cybersecurity products offer two solutions, one is called Hewlett-Packard Enterprise have competitive advantages on-site solution, the other is cloud-based solution. due to their longer operating histories, larger financial Revenue stream from this industry are come from security resources, larger marketing resources and bigger subscriptions, licensees, patent, and updating fees. consumer bases. These companies also have better cost Companies apply the cybersecurity products usually pay strategy, which can offer similar products as Check Point a lot at the beginning to acquire the product and the with lower prices. Checkpoint was a leader in network licensees. Later, they need to pay about one-fifth of the firewalls category. However, it is not able to successfully initial expenses annually to maintain and updating the compete with Palo Alto Networks and Fortinet now. security software. Check Point should continually update and improve their products to satisfy customers’ requirements. Check Point also need to continually keep product quality to protect their reputation in the high-growth market. Microsoft, Oracle, Adobe and IBM are the main competitors in this industry and Microsoft is the best positioned with the highest revenue of $125,843 million.15

Catalysts for Growth and Change

Companies are relying more on internet than ever before due to the pandemic. Important information and classified documents are transferred across internet because employees are working from home. Cybersecurity is getting more important for companies since people rely more on their personal computer and smart when away from office. We believe this is a growth opportunity for Check Point because their Infinity Architecture is the only

fully consolidated cyber security architecture that provides unprecedented protection against Gen V mega- In the high-growth stage, companies which have larger cyberattacks as well as future cyber threats across all market share are better positioned because they can obtain networks, endpoint, cloud and mobile. We believe more more revenue and build good reputation. companies will adopt to this technology as they need to mitigate and detect cyberattacks when employees are working away from the office and using different platform to handle the documents.

Key Investment Positives and Negatives The industry should benefit from Coronavirus the industry with more personal devices being used for work and needing security. This trend should continue into the future even after Covid as many employers realize people are able to get work done at home so they might not bring everyone into the office 5 days a week. The software industry is becoming very competitive Another positive for the industry is the transition from because of innovation to IT infrastructure for cloud product & licenses to security subscriptions. The servicing and a large demand for cloud services as many transition will benefit companies has a subscription-based businesses and organizations move online as the COVID- model has higher margins as well as steady predictable 19 pandemic continues. The industry has many initial revenue compared to product & licenses. The transition barriers as main competitors already have the upper hand will produce more free cash flow which companies can with extensive research and development, sizeable reinvest in research & development or return the money intellectual property and patents, and massive capital to to shareholders through dividends and buybacks. acquire more proprietary software. These barriers protect Companies have been aggressively returning profits to the main competitors in the industry from new shareholders the past couple years. competitors because their products remain the best in the industry and do not allow new competitors to compete for A negative about the industry is it was recently trading at market share. The main competitors keep this industry an all-time high P/E as investors realized who would be very competitive with extensive portfolios of patented the beneficiaries of Covid. It’s possible that the industry technology because having the newest innovation is key. sustains these higher P/E levels as margins improve with The most innovative technology is key because there is no the switch to subscription model and companies returning threat of substitution due to uniqueness and consumers the cash flow from the margins to shareholders as yields desire the most innovative products. This makes on bonds are very low. intellectual property very important in the industry. Checkpoints biggest weakness is they are owned by a small number of investors. This small number of investors Company Outlook own are large portion of the company and have a majority Overview and Business Description interest in the company’s voting rights. This could be bad for other investors because the small group may have Check point is established by CEO Gil Shwed in 1993, different interests then the rest of the investors. Another check point introduced -1, a leading provider of weakness is management has acknowledged that their cyber security solutions to governments and corporate enterprises globally. It has been named as a Leader in the pricing model needs to be changed to be more successful. IDC MarketSpace: World Mobile Threat Management Checkpoint must fix their pricing model, or they risk Software 2020 Vendor.6 It provides most comprehensive losing customers and revenue. Checkpoint’s main threat one point of control security management system. Now, is their competitors have longer operating histories, it protects over 100,000organizations of all size. The access to larger customer bases, significantly greater company has continued to deliver their innovative financial, technical, and marketing resources, more cybersecurity solutions. Check point offers complete products, services, and applications, and larger patent support lifecycle for its appliances, include software and portfolios. These competitors are a huge threat because upgrading system support. From recent financial report, it they potentially already have intellectual property that can shows that its total revenues are increasing during the provide substitutes for Checkpoint’s products and the recent 5 years, and a 4% increase year over year. Also, competitors also have the money for research and its earnings per share is increase each year. During development to find more patented property to provide the year of 2019, the company repurchased approximately 171.1 million shares at total cost of $9.2 substitutes. There is also the threat of vendors increasing billion, which is about 11% of total market capital.3 functionality of components to include Checkpoint’s services. This will also provide a substitute for consumers and potentially hurt Checkpoint. Checkpoint must keep acquiring new technology or developing technology to Things make Check Point outstanding avoid these threats. Check point is different from other competitors for three Catalyst for Growth reasons. Firstly, they are the forerunner in IT security sector before most companies had even connected to the Companies are relying more on internet than ever before internet. After 22 years, checkpoint is still the largest pure security vendor.4 They provide professional focused due to the pandemic. Important information and classified services for a long time to make it excellent. Second it has documents are transferred across internet because the most comprehensive and complete range of solutions employees are working from home. Cybersecurity is from the Zone Alarm Free Firewall for customers, up to getting more important for companies since people rely the largest enterprise and data center security appliances more on their personal computer and smart when away and encompass protection for mobiles and cloud from office. We believe this is a growth opportunity for environment. Check Point maintain the professional Check Point because their Infinity Architecture is the only services to all kinds of cybersecurity needs. Thirdly, Checkpoint never stops innovating and introduce fully consolidated cyber security architecture that advanced protection technology against threats.4 provides unprecedented protection against Gen V mega- cyberattacks as well as future cyber threats across all networks, endpoint, cloud and mobile19. We believe more Corporate Strategy companies will adopt to this technology as they need to mitigate and detect cyberattacks when employees are working away from the office and using different Checkpoint is going to add new customers, more technologies and new markets. They will expand the platform to handle the documents. market in China since they saw the opportunities in China. By working with new people, checkpoint will start

its globalization journey. They are applying market penetration strategy. In addition, check point use messaging and communications strategies to target users and business decision makers.5 According to Check Point third quarter financial Results, Check Point announced the acquisition of Odo Security, it is applying merging and acquisition policy to increase company’s security solutions to business, institutions, and competition power and market share. Check Point it keep other government agencies. focusing on technology development and release a new technology in quarter 3, 2020.10 Significant customers

Product Line Significant customers include IT companies, government Check Point’s product line can be divided into six agencies, and business institutions and individuals. 19% categories. of Check point customers are from Computer Software industry, 7% of total customers are Information technology industry. 53% of Checkpoint customers are in United States, 9% are in United Kingdom, 5% are in India.7 As we can see from the geometric of customers, oversea markets are significant for checkpoint. For its market strategy has mentioned that they will explore foreign markets and keep doing market penetration, which will predict higher revenues in the future.

Customers from the world

5% Computer Software industry 10% 20% Information 8% technology industry The infinity architecture is a consolidated security 57% United States architecture that protects against cyber-attacks. Check United Kingdom Point’s threat prevention system stops those attacks before they occur.

Check Point’s cloud includes SaaS, PaaS and IaaS technology, which helps to process efficiencies Revenues of checkpoint comes from three main streams, and boost network agility. Furthermore, it includes cloud they are selling products and licenses, which is 25.6% of infrastructure and platforms, for example, Web total revenues; Selling Security Services.8 For the product line in Network, it has next subscriptions is about 30.6% of total revenue; Software generation of firewall platform, network threat updates and maintenance is about 43.8% of the total prevention, hyperscale network security. Check Point’s revenues.10 For about 50% of revenues come from network securities by using threat prevention system to software updates and maintenance, which reflects that prevent attacks and new-generation firewalls. Its they are from current existing customers. Check point can product line for mobile includes mobile threat defense, keep this part of customers easily by providing the mobile secure workspace. Its product line for endpoint outstanding customer services and offer professional updating and maintenance technology. For our security includes threat prevention and remote access expectation of check point’s future revenue trend will VPN for complete windows and MAC OS X security. increase. In our estimation for net income at the end of Also, checkpoint provides various security management. 2020 is 4% lower than 2019. But in the year 2021 to 2026, Recently, in Q3 2020 report, it releases a new product there will be a continuous up trend for about 2-3% growth which is a cloud-based technology which gives next rate in net income. generation of secure remote access to corporations.10 For the new product of check point, it will continue explore infinity architecture threat prevention and easy Check Point uses integration to better meet various customer demands through partnerships with suppliers such as IBM, Hewlett-Packard, Apple, and Microsoft (Form 6-k,2020). The main operating expenses of Check Point are research and development of $61.3 million which is 22.07% of total operating expenses, as well as selling & marketing expense of $135.8 million which is 48.9% of total operating expenses in the second quarter (Third quarter 2020 financial results, 2020). The main costs of revenues are cost of products and licenses, cost of security subscriptions and cost of software updates and maintenance (Third quarter 2020 financial results, 2020). The cost of revenues is 19.37% Recent Financials of total operating expenses.

On October 22, 2020, Check Point reported its financial results for the third quarter ended September 30, 2020. The total revenue is $509 million in the second quarter. The revenue of $120.2 million comes from products and licenses and $168.8 million comes from security subscriptions. The revenue of $220 million comes from software updates and maintenance. Compared to the third quarter in 2019, the total revenue increases 4% (Third quarter 2020 financial results, 2020) Because the impact of the Covid-19, more and more organization migrate their core systems such as CRM to the cloud. Checkpoint developed their technology to protect security of organization’s cloud environment. Therefore, a 10.3% increase of security of subscription year over year. The earnings Competition per diluted share is $1.42, which is 14% increase from year-ago quarter. The cash flow from operation According to Cybersecurity Excellence Awards, the increases 1.6% from year-ago quarter, which is $248 solution of checkpoint is the most comprehensive and million in 2020 (Third quarter 2020 financial results, integrated in the industry. Checkpoint focus on 2020). Based on the research of cyber- innovate to provide new protections to customers to help attacks, checkpoint found that resume themed attacks them against emerging threats and cyber-attacks. They and spam email increased due to the raise of focus on providing protections to cloud securities to organizations. However, they lost market share in unemployment rate. Therefore, checkpoint plan network security industry because of the entry of large to continues focus on cyber security (Form 6-k, competitors and many new companies. 2020). Management didn’t provide guidance in the The larger competitors are Cisco, Juniper, second quarter. and IBM. Some smaller competitors include Palo Alto Networks and FireEye, which offer competing solutions Production and Distribution to Check Point (Bonner, 2020). Microsoft entry IT security, which increase the competition (Bonner, Checkpoint has 200 relationships including 152 partners, 2020). Larger corporation such as Microsoft has larger 39 customers and 9 suppliers (Factset, 2020). Although customer bases and larger financial resource, which may Check Point do not manufacture in China, some of offer similar products with lower price. Therefore, the component parts are manufactured in China. The fast-changing software security market requires Check shutdown of economy in China and other country in the Point rapidly update their products and services, as well world negatively affect supply chain of Check Point. as optimizing their cost strategy to prepare for price war. Check Point also should invest in marketing to improve portfolios. These competitors are a huge threat because their goodwill and get more market share. According to they potentially already have intellectual property that can Check Point third quarter financial Results, Check Point provide substitutes for Checkpoint’s products and the announced the acquisition of Odo Security, which can competitors also have the money for research and “integrate with Check Point’s Infinity architecture threat development to find more patented property to provide prevention capabilities and provide an easy and secure substitutes. There is also the threat of vendors increasing solution to address the growing needs that enterprises functionality of components to include Checkpoint’s have to enable secure remote access for their employees to any application (Third quarter 2020 financial results, services. This will also provide a substitute for consumers 2020).” Check Point also introduce new IoT Protect and potentially hurt Checkpoint. Checkpoint must keep solution, which can beat advanced cyber-attacks. With acquiring new technology or developing technology to introducing new products and acquisition of technology avoid these threats. company, we believe Check Point’s market share will increase in next year. Valuation Analysis

Key Investment Positives and DCF and EP

Negatives We used Checkpoint’s operating drivers to perform the Checkpoint has acquired multiple technology companies Corporate Strategy discounted cash flow and economic profit analysis to find with proprietary technology. Checkpoint acquired their intrinsic value. We believe that the discounted cash Dome9, ForceNock, Cymplify, and Protego. Dome9 flow and economic analysis best represents the value of provides customers with secure multi-platform Checkpoint because it takes into consideration each deployments for Amazon AWS, Microsoft Azure, and segment of revenue and does not relay on analysts’ Google Cloud. Provides safer and more manageable cloud estimates that are usually over estimated. Using the deployments. ForceNock developed web application and discounted cash flow and economic profit analysis to API technology protection that is very important for determine that Checkpoint’s intrinsic value is $186.48. Apple store, Google store and Microsoft store. Cymplify The investment horizon that we forecasted was six years developed new IoT Cyber security technology that could long before the company reached a steady state. We then potentially make their infrastructure better than other calculated the continuing value that would grow in products in market. Protego is a new serverless security perpetuity for each model. The constant growth rate for technology company that has Cloud Work Protection this continuing value was 1.00%. We discounted all cash (CWP) and Security Posture Management (SPM). flows and the continuing value back time 0 using the Checkpoint has a huge opportunity with COVID-19 weighted-average cost of capital. This provided us with a boosting eCommerce and moving organizations online. present value of free cash flow and present value of Cloud service market is growing as organizations look to economic profit. The present value of free cash flow was move digitally. Organizations may upgrade their current equal to the value of Checkpoint’s operating assets. We cloud services to handle more internet traffic. adjusted these assets by subtracting the present value of Organizations want to keep their cloud network secure operating leases, employee stock options, and and safe with data encryption and data loss prevention. underfunded severance plan and by adding marketable Checkpoints biggest weakness is they are owned by a securities and excess cash. This was the value of equity small number of investors. This small number of investors and it was divided by the current shares outstanding to own are large portion of the company and have a majority give us the intrinsic value of $186.48. For the economic interest in the company’s voting rights. This could be bad profit analysis, we added last years invested capital to the for other investors because the small group may have present value of economic profit to find the total operating different interests then the rest of the investors. Another assets. From there we made the same adjustments as the weakness is management has acknowledged that their discounted cash flow model. This gave us the value of pricing model needs to be changed to be more successful. equity and was divided by shares outstanding to find the Checkpoint must fix their pricing model, or they risk intrinsic value of $186.48. This intrinsic value indicates losing customers and revenue. Checkpoint’s main threat that checkpoint is very undervalued based on today’s is their competitors have longer operating histories, current stock price. Therefore, we are giving Checkpoint access to larger customer bases, significantly greater a buy rating. financial, technical, and marketing resources, more products, services, and applications, and larger patent

Dividend Discount Model Research and Development

The implied price as of today we for Check Point is Research and development are the most important $149.51. Since Check Point does not provide dividend segments for Checkpoint because innovation is key in now and we don’t anticipate seeing they give dividend in the Information Technology sector. Companies that are the forecasted period, we get the implied price by always leading the industry have the best innovation and discounting the future stock price we estimated. This provide their consumers with the best possible products. future stock price is calculated by multiplying the price to We expect research and development to keep growing 1%. This will hopefully allow Checkpoint to find the earnings multiple by the estimated earnings per share for proprietary technology to keep them ahead of the 2026. industry. Relative Valuation

Selling, General and Administrative We list several comparable firms by their size, industry and characteristic such as beta and growth. We collect Selling, general and administrative expenses are expected recently financial information that include price, EPS, to remain the same over the next five years because we stock price and estimated 5-year growth rate. We remove are forecasting a decrease in products and licenses and an outliers and firms which has negative EPS. After selecting increase in security subscriptions and software updates. process, we use Palo Alto Networks, Fortinet, Juniper Security subscriptions and software updates are going to Networks, Leidos Holdings, Inc. and Cisco to calculate the implied price. We use expected earnings per share that make up 80% of Checkpoint’s revenue by 2026. This will from our Check Point model multiple the average P/E eliminate some of their expenses because no marketing or ratio of our peers to calculate implied stock price of Check selling will be needed for these repeat customers. Point. We get estimated price $173.45 in 2021 and Therefore, SGA will remain the same each year. $159.09 in 2022. We also use estimated EPS from our model multiple estimated growth rate and average PEG ratio to calculate the implied price. We get estimated price Normal Cash $95.36 in 2021 and $90.43 in 2022. We believe P/E ratio model is more accurate than PEG ratio model because Checkpoint’s normal cash is 5.89% of sales. We used this analysts underestimated the growth rate due to unstable percentage because this was the lowest cash as a economic environment. percentage of total sales over there past six years. We believe this is a good marker for normal cash because it is the lowest amount that they previously have held. Revenue Decomposition

We divided Check Point’s revenue into three different Cost of Equity categories: products & licenses, security subscriptions, We used the Capital Asset Pricing Model to calculate the and software updates & maintenance. Products & licenses cost of equity for Check Point. Our risk-free rate was the has seen a decline in YOY revenue since 2016 as there is 10-year treasury yield which was 0.88%. We used a beta a larger emphasis on the switch to subscription-based of 0.69 which we calculated by taking the average of the model which we believe will continue. Our estimates 2, 3, 4, and 5-year weekly betas. Our equity risk premium have products & licenses having a -2.11% compounded was taking from Damodaran’s website which he annual (CAGR). We believe security subscriptions is calculated for the month of November and that was Check Points largest growth opportunity going forward as 5.35%. With these inputs we calculated a cost of equity of companies switch from the products and licenses and we 4.57%. We would like to point out that both risk-free rate estimate the category will have a 4.39% CAGR. We and the equity risk premium can drastically be changed believe the software updates & maintenance will also depending on the state of the economy and COVID-19. grow steadily in the future with a CAGR of 1.73%.

change about 4%. For every 0.2% of NOPLAT growth, Cost of Debt the WACC change 4.22% in stock price. They are similar sensitive. Check Point has an after-tax cost of debt of 4.01%. Since Check Point doesn’t have any publicly traded debt, we used a 30-year bond yield of 3.87% from Hewlett Packard. We realize this may not be the best comp to Check Point but with the only debt Check Point has being operating leases it has very little to no effect. We used a marginal tax rate of 14% to calculate the after-tax cost of debt as the past couple years the marginal tax rate for Equity risk premium and Beta Check Point has been mid to high teens. Equity risk premium and beta are two essential elements Weighted Average Cost of Capital in the capital asset pricing model. We use the four years of historical average beta of 0.69 and use geometric

average method to calculate the equity risk premium of The weighted average cost of capital (WACC) for Check 5.35%. For each element to change a small percentage Point is 4.57%. We calculated this by taking the weight of leads to a huge effect on stock price. This is discounted the equity multiplied by the cost of equity plus the weight rate can affect cash flow for every period and the intrinsic of debt multiplied by the cost of debt. As mentioned in the value. So, the increase of beta, the stock price decreased, same as the risk premium decreased, stock price cost of debt section the only debt Check Point has is increased. operating leases so that gave a weight of debt of 0.16% compared to the equity weight of 99.84%. The WACC could easily be affected by the risk-free rate or equity risk premium changing as well as if Check Point would decide to issue debt.

Share Outstanding

Marginal Tax Rate and Pretax Cost of Debt Although Check Point doesn’t return capital to shareholders through dividends it has been returning To calculate the cost of debt, a company must determine capital through large buybacks of stock over the years. the total amount of interest it pays on the debt of the year. We believe they will continue to buyback stock through Then, divided the number by the total cost of all its debt. In order to calculate the cost of debt, we use the marginal 2026, but we do think that the number of buybacks will tax rate times one minus pre-tax cost of debt. For the start to decrease before increasing again 2025. Check increase in marginal tax rate, the stock price decrease. For Point also has employee stock option, but we don’t the increase of pretax cost of debt, it has positive affect on believe it’s very significant as they’re buying back more the stock price. shares every year than what would be issued. Sensitivity Analysis

WACC and CV Growth of NOPLAT We did the comparison between Weighted average cost of capital (WACC) and the CV growth of NOPLAT because the discount rate affects every cash flow and the value in the future. It is important for us to predict how the change in discount rate and continuing value rate affect the stock’s intrinsic value. We predicted the WACC is 4.57% and CV growth of NOPLAT 1%. After the analysis, for every 0.2% change of WACC, its stock price Cost of Equity and CV ROIC For sensitivity analysis between CV and cost of equity because discount rate affects the cash flow and the intrinsic value in the future. Then the intrinsic value needs to be positively related with cost of equity for discounted cash flow calculation. From the table, the increasing cost of equity and CV ROIC will make stock price increase a little. So, both had small effect on the stock price.

Risk Free Rate and Normal Cash

We tested nomal cash and risk free rate because both variables affect the discounted cash flow model and economic profits. We presume the normal cash is about 10.76% of the total revenues and a risk free rate of 0.88% whic uses a ten-year Treasury bond. From the table, for the changes of risk free rate has almost no impact on the stock price change, but there is a negative relationship between risk free rate and normal cash. There is a also an inverse relationship between them. Once the normal cash increases, the stock prie decerases a little bit.

Reference 8. Check Point Software Technologies Ltd. (n.d.). 1. A 2020 Gartner Magic Quadrant Leader for Form 20-F For the fiscal year ended Network Firewalls. 2020. Gartner. December 31, 2018. Retrieved Retrieved from: September 20,2020, from https://start.paloaltonetworks.com/2020- https://www.checkpoint.com/downloads gartner-mq-for-firewalls.html /investor-relations-related/2018-chkp- 2. Consumer Price Index – OCTOBER 2020. 20f.pdf. Bureau of Labor Statistics. Retrieved 9. Check Point Software technologies LTD. 2020. from: FactSet. Retrieved from: https://www.bls.gov/news.release/pdf/cp https://my.apps.factset.com/navigator/co i.pdf mpany-security/snapshot/CHKP-US 3. Check Point Software Technologies Ltd., C. 10. Check Point Software technologies reports third (2020, February 03). Check Point quarter 2020 financial results. 2020. Software Technologies Announces Check Point. Retrieved from: Expansion of Share Repurchase https://www.checkpoint.com/downloads Program. Retrieved November 17, 2020, /investor-relations-related/check-point- from software-technologies-report-third- https://www.globenewswire.com/news- quarter-2020-financial-results.pdf?v=1.2 release/2020/02/03/1978550/0/en/Check 11. Cybersecurity Excellence Awards. Check Point -Point-Software-Technologies- Software technologies. Retrieved from: Announces-Expansion-of-Share- https://cybersecurity-excellence- Repurchase-Program.html awards.com/candidates/check-point- software-technologies/ 4. Check Point Software Technologies. (2016, 12. Cyber Security Market Analysis Report. (June August 09). Retrieved November 17, 2020). Grand View Research. Retrieved 2020, from from: https://cybersecurity-excellence- https://www.grandviewresearch.com/ind awards.com/candidates/check-point- ustry-analysis/cyber-security-market software-technologies/ 13. Dishman, L. (2020, April 22). Replacing 5. Cohan, P. (2018, April 13). Check Point workers after COVID-19 is going to Software's CEO Reveals 4 Keys To come with a high cost for everyone. Global Growth. Retrieved November Retrieved from: 17, 2020, from https://www.fastcompany.com/9049431 https://www.forbes.com/sites/petercoha 9/replacing-workers-after-covid-19-is- n/2018/04/13/check-point-softwares- going-to-come-with-a-high-cost ceo-reveals-4-keys-to-global-growth/ 14. Form 6-k. July 2020. Check Point Software 6. Check Point Software Technologies Ltd., C. technologies LTD. Retrieved from: (2020, September 10). Check Point https://www.checkpoint.com/downloads Software Technologies Named a Leader /investor-relations-related/Q2-20-6K.pdf in the IDC MarketScape Report for 15. Freeman, J,.& Young, J, Y. 2020. Industry Mobile Threat Management. Retrieved Surveys Software. CFRA. November 17, 2020, from https://www-capitaliq- https://www.globenewswire.com/news- com.proxy.lib.uiowa.edu/CIQDotNet/Re release/2020/09/10/2091612/0/en/Check search/DocumentViewer.aspx?documen -Point-Software-Technologies-Named- tViewerDocumentId=45371467 a-Leader-in-the-IDC-MarketScape- 16. Industry Market Research, Reports, and Report-for-Mobile-Threat- Statistics. (n.d.). Retrieved November Management.html 17, 2020, from 7. “Companies using Check Point.” (2020). https://www.ibisworld.com/united- Enlyft.com, states/market-research-reports/software- https://enlyft.com/tech/products/check- publishing-industry/ point

28. U.S. Bureau of labor statistics. (2020). 12-month 17. Joseph Bonner. July 2020. Argus Research. percentage change, Consumer Price Retrieved from: Index, selected categories. Retrieved https://my.apps.factset.com/document- from: search/research/?_referrer=NRFResearc https://www.bls.gov/charts/consumer- hAutoRedirectPhase2&_symbol=CHKP price-index/consumer-price-index-by- -US category.htm# 18. Mutua, Caleb. “U.S. Corporate Bond Sellers Are Preparing an Onslaught of Deals.” Yahoo! Finance, Yahoo!, 8 Nov. 2020, ca.finance.yahoo.com/news/u-corporate- bond-sellers-preparing- 140000592.html. 19. Security Architecture - Check Point Infinity. (2020, October 13). Retrieved from https://www.checkpoint.com/architectur e/infinity/ 20. Skyes, T. (2020, October 22). US Unemployment Rate: What Is And How It Can Affect Stock Market. Retrieved from https://www.timothysykes.com/blog/us- unemployment-rate/ 21. The Top 10 Economic Indicators: What to Watch and Why. (2020). AAII staff. https://www.aaii.com/investing- basics/article/the-top-10-economic-

indicators-what-to-watch-and-why 22. U.S. Economy at a Glance. (n.d.). Retrieved November 17, 2020, from https://www.bea.gov/news/glance 23. United States: Consumer Confidence Index: CEIC. (2020, October 01). Retrieved November 17, 2020, from https://www.ceicdata.com/en/united- states/consumer-confidence-index 24. United States Unemployment Rate 1948-2020 Data: 2021-2022 Forecast: Calendar. (n.d.). Retrieved from

https://tradingeconomics.com/united- states/unemployment-rate 25. 10 Year Treasury Rate, 2020, ycharts.com/indicators/10_year_treasury _rate. 26. “10-Year High Quality Market (HQM) Corporate Bond Par Yield.” FRED, 16 Oct. 2020, fred.stlouisfed.org/series/HQMCB10YR P. 27. “10-Year Treasury Constant Maturity Rate.” FRED, 5 Nov. 2020,

fred.stlouisfed.org/series/DGS10.

Important Disclaimer

This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

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Check Point Software Technologies Revenue Decomposition

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E Product & licenses 559026 525557 510800 495476 481603 471971 457812 453233 444169 439727 YOY growth % -2.43% -5.99% -2.81% -3.00% -2.80% -2.00% -3.00% -1.00% -2.00% -1.00% Product & licenses as % of total revenue 30.14% 27.42% 25.61% 24.42% 22.81% 22.18% 21.17% 20.67% 20.02% 19.54%

Security subscriptions 480352 542323 610300 653021 705263 754631 784816 792664 808518 824688 YOY growth % 23.20% 12.90% 12.53% 7.00% 8.00% 7.00% 4.00% 1.00% 2.00% 2.00% Security subscriptions as % of total revenue 25.90% 28.30% 30.59% 32.18% 33.40% 35.46% 36.30% 36.14% 36.44% 36.65%

Software updates & maintenance 815280 848595 873700 880689.6 924724.08 901605.98 919638.1 947227.24 966171.79 985495.22 YOY growth % 4.73% 4.09% 2.96% 0.80% 5.00% -2.50% 2.00% 3.00% 2.00% 2.00% Software updates & maintenance as % of total revenue 43.96% 44.28% 43.80% 43.40% 43.79% 42.36% 42.53% 43.19% 43.54% 43.80%

Total revenues 1854658 1916475 1994800 2029187 2111589 2128208 2162266 2193125 2218858 2249910 YOY growth % 6.51% 3.33% 4.09% 1.72% 4.06% 0.79% 1.60% 1.43% 1.17% 1.40% Check Point Software Technologies Income Statement

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E Revenues Product & licenses 559.03 525.56 510.80 495.48 481.60 471.97 457.81 453.23 444.17 439.73 Security subscriptions 480.35 542.32 610.30 653.02 705.26 754.63 784.82 792.66 808.52 824.69 Software updates & maintenance 815.28 848.60 873.70 880.69 924.72 901.61 919.64 947.23 966.17 985.50 Total revenues 1854.66 1916.48 1994.80 2029.19 2111.59 2128.21 2162.27 2193.13 2218.86 2249.91

Cost of revenues Cost of products & licenses 104.2 91.9 90.7 89.7 87.2 85.4 82.9 82.0 80.4 79.6 Cost of security subscriptions 18.9 17.7 24.6 19.7 21.3 22.8 23.7 23.9 24.4 24.9 Cost of software updates & maintenance 87.7 88.9 94.5 92.6 97.2 94.8 96.7 99.6 101.6 103.6 Amortization of technology 2.2 2.8 5.6 8.0 8.0 6.9 5.2 4.9 4.9 4.9 Total cost of revenues 213.0 201.4 215.4 210.0 213.7 209.9 208.4 210.4 211.3 213.0

Operating Expenses Research & development, net 192.4 211.5 239.2 248.2 258.3 260.3 264.5 268.3 271.4 275.2 Selling & marketing expense 433.4 500.9 552.7 573.5 590.9 595.6 605.1 613.7 620.9 629.6 General & administrative expense 92.0 88.9 105.7 104.6 108.8 109.7 111.4 113.0 114.3 115.9 Total operating expenses 930.7 1002.7 1113.0 1136.3 1171.7 1175.5 1189.4 1205.5 1218.0 1233.8

Operating income (loss) 923.9 913.8 881.8 892.9 939.9 952.8 972.8 987.7 1000.9 1016.1 Financial income (expenses), net 47.0 65.1 80.6 37.4 41.4 44.2 47.7 51.7 55.9 59.3 Income (loss) before taxes on income 970.9 978.8 962.4 930.3 981.3 996.9 1020.5 1039.4 1056.8 1075.5 Current income taxes 101.9 140.8 ------Taxes (benefit) on income 168.0 157.5 136.7 130.2 137.4 139.6 142.9 145.5 147.9 150.6 Net income (loss) 802.9 821.3 825.7 800.0 843.9 857.4 877.6 893.9 908.8 924.9

Year-end shares outstanding 159.0 155.4 145.5 141.4 138.2 135.7 134.0 132.5 130.7 128.8 Net earnings (loss) per share - basic 4.93 5.24 5.48 5.66 6.11 6.32 6.55 6.75 6.95 7.18 Dividends per share 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Check Point Software Technologies Balance Sheet

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E Assets Current Assets Cash & cash equivalents 245.01 303.69 279.20 173.00 554.54 959.59 1443.18 1940.27 2349.54 2677.72 Marketable securities 1165.27 1442.64 1300.10 1301.78 1303.46 1305.14 1306.82 1308.51 1310.20 1311.89 Trade receivables, net 472.22 495.39 495.80 523.52 544.78 549.06 557.85 565.81 572.45 580.46 Prepaid expenses & other current assets 81.48 74.74 59.10 71.23 74.12 74.70 75.90 76.98 77.89 78.98 Total current assets 1964.43 2321.91 2134.20 2069.52 2476.90 2888.49 3383.75 3891.57 4310.07 4649.04 Long-term Assets Marketable securities 2437.32 2287.35 2368.80 2389.65 2389.65 2389.65 2389.65 2389.65 2389.65 2389.65 Property & equipment, net 77.77 78.51 87.70 104.24 120.79 137.33 153.88 170.42 186.97 203.51 Deferred tax asset, net 119.4 84.7 55.3 45.0 47.5 48.3 49.4 50.3 51.2 52.1 Other intangible assets, net 18.4 41.0 42.8 34.8 26.8 19.9 14.7 9.8 4.9 0.0 Goodwill 812.0 950.6 981.9 981.9 981.9 981.9 981.9 981.9 981.9 981.9 Other assets 33.6 64.2 94.2 51.9 54.0 54.5 55.3 56.1 56.8 57.6 Total long-term assets 3498.5 3506.3 3630.7 3607.6 3620.7 3631.5 3644.9 3658.2 3671.4 3684.7 Total Assets 5462.9 5828.2 5764.9 5677.1 6097.6 6520.0 7028.6 7549.8 7981.4 8333.7

Liabilities and Shareholder's Equity Current Liabilities Trade payables 12.2 20.8 15.9 18.5 19.3 19.4 19.7 20.0 20.3 20.5 Employees & payroll accruals 139.8 157.0 190.9 169.6 176.5 177.9 180.7 183.3 185.5 188.1 Deferred revenues 878.3 980.2 1011.9 944.8 983.2 990.9 1006.8 1021.2 1033.2 1047.6 Accrued expenses & other current liabilities 176.6 174.0 178.0 228.1 237.4 239.3 243.1 246.6 249.5 252.9 Total current liabilities 1206.9 1331.9 1396.7 1361.1 1416.4 1427.5 1450.4 1471.1 1488.3 1509.2 Long-Term Liabilities Deferred revenues 308.3 357.8 374.8 274.6 285.8 288.0 292.6 296.8 300.3 304.5 Income tax accrual 337.5 356.8 393.3 224.7 237.0 240.8 246.4 251.0 255.2 259.7 Other liabilities - 9.4 31.3 ------Total long-term liabilities 655.9 724.0 799.4 499.3 522.7 528.8 539.1 547.8 555.5 564.2 Total Liabilities 1862.8 2055.8 2196.1 1860.4 1939.1 1956.3 1989.4 2018.9 2043.8 2073.4

Shareholder's Equity Common Equity 1305.9 1598.6 1771.1 1919.0 2066.8 2214.7 2362.6 2510.4 2658.3 2806.2 Treasury shares at cost 5893.2 6844.7 8092.7 8792.7 9442.7 10042.7 10592.7 11142.7 11792.7 12542.7 Accumulated other comprehensive income (loss) -15.6 -24.5 21.7 21.7 21.7 21.7 21.7 21.7 21.7 21.7 Retained earnings 8203.0 9043.0 9868.7 10668.7 11512.6 12370.0 13247.6 14141.5 15050.3 15975.2 Total shareholders' equity 3600.1 3772.4 3568.8 3816.7 4158.5 4563.7 5039.2 5530.9 5937.6 6260.4 Total liabilities & shareholders' equity 5462.9 5828.2 5764.9 5677.1 6097.6 6520.0 7028.6 7549.8 7981.4 8333.7

Total Net Sales 1854.7 1916.5 1994.8 2029.2 2111.6 2128.2 2162.3 2193.1 2218.9 2249.9 Check Point Software Technologies Common Size Income Statement

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E Product & licenses 30.1% 27.4% 25.6% 24.4% 22.8% 22.2% 21.2% 20.7% 20.0% 19.5% Security subscriptions 25.9% 28.3% 30.6% 32.2% 33.4% 35.5% 36.3% 36.1% 36.4% 36.7% Software updates & maintenance 44.0% 44.3% 43.8% 43.4% 43.8% 42.4% 42.5% 43.2% 43.5% 43.8% Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of products & licenses 18.6% 17.5% 17.8% 18.1% 18.1% 18.1% 18.1% 18.1% 18.1% 18.1% Cost of security subscriptions 3.9% 3.3% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Cost of software updates & maintenance 10.8% 10.5% 10.8% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% Amortization of technology 0.1% 0.1% 0.3% 0.4% 0.4% 0.3% 0.2% 0.2% 0.2% 0.2% Total cost of revenues 11.5% 10.5% 10.8% 10.3% 10.1% 9.9% 9.6% 9.6% 9.5% 9.5% Research & development, net 10.4% 11.0% 12.0% 12.2% 12.2% 12.2% 12.2% 12.2% 12.2% 12.2% Selling & marketing expense 23.4% 26.1% 27.7% 28.3% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% General & administrative expense 5.0% 4.6% 5.3% 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% Total operating expenses 50.2% 52.3% 55.8% 56.0% 55.5% 55.2% 55.0% 55.0% 54.9% 54.8% Operating income (loss) 49.8% 47.7% 44.2% 44.0% 44.5% 44.8% 45.0% 45.0% 45.1% 45.2% Financial income (expenses), net 2.5% 3.4% 4.0% 1.8% 2.0% 2.1% 2.2% 2.4% 2.5% 2.6% Income (loss) before taxes on income 52.4% 51.1% 48.2% 45.8% 46.5% 46.8% 47.2% 47.4% 47.6% 47.8% Current income taxes 5.5% 7.3% - Taxes (benefit) on income 9.1% 8.2% 6.9% 6.4% 6.5% 6.6% 6.6% 6.6% 6.7% 6.7% Net income (loss) 43.3% 42.9% 41.4% 39.4% 40.0% 40.3% 40.6% 40.8% 41.0% 41.1% Check Point Software Technologies Common Size Balance Sheet

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E Assets Current Assets Cash & cash equivalents 13.2% 15.8% 14.0% 16.1% 16.1% 16.1% 16.1% 16.1% 16.1% 16.1% Marketable securities 62.8% 75.3% 65.2% 65.1% 65.1% 65.1% 65.1% 65.1% 65.1% 65.1% Trade receivables, net 25.5% 25.8% 24.9% 25.8% 25.8% 25.8% 25.8% 25.8% 25.8% 25.8% Prepaid expenses & other current assets 4.4% 3.9% 3.0% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% Total current assets 105.9% 121.2% 107.0% 110.5% 110.5% 110.5% 110.5% 110.5% 110.5% 110.5% Long-term Assets Marketable securities 131.4% 119.4% 118.7% 139.9% 139.9% 139.9% 139.9% 139.9% 139.9% 139.9% Property & equipment, net 4.2% 4.1% 4.4% 5.2% 6.1% 6.9% 7.7% 8.5% 9.4% 10.2% Deferred tax asset, net 6.4% 4.4% 2.8% 3.6% 3.6% 3.6% 3.6% 3.6% 3.6% 3.6% Other intangible assets, net 1.0% 2.1% 2.1% 1.7% 1.3% 1.0% 0.7% 0.5% 0.2% 0.0% Goodwill 43.8% 49.6% 49.2% 49.2% 49.2% 49.2% 49.2% 49.2% 49.2% 49.2% Other assets 1.8% 3.4% 4.7% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% Total long-term assets 188.6% 183.0% 182.0% 180.8% 181.5% 182.0% 182.7% 183.4% 184.0% 184.7% Total Assets 294.6% 304.1% 289.0% 284.6% 305.7% 326.8% 352.3% 378.5% 400.1% 417.8%

Liabilities and Shareholder's Equity Current Liabilities Trade payables 0.7% 1.1% 0.8% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% Employees & payroll accruals 7.5% 8.2% 9.6% 8.4% 8.4% 8.4% 8.4% 8.4% 8.4% 8.4% Deferred revenues 47.4% 51.1% 50.7% 46.6% 46.6% 46.6% 46.6% 46.6% 46.6% 46.6% Accrued expenses & other current liabilities 9.5% 9.1% 8.9% 11.2% 11.2% 11.2% 11.2% 11.2% 11.2% 11.2% Total current liabilities 65.1% 69.5% 70.0% 67.1% 67.1% 67.1% 67.1% 67.1% 67.1% 67.1% Long-Term Liabilities Deferred revenues 16.6% 18.7% 18.8% 13.5% 13.5% 13.5% 13.5% 13.5% 13.5% 13.5% Income tax accrual 18.2% 18.6% 19.7% 11.3% 11.9% 12.1% 12.4% 12.6% 12.8% 13.0% Other liabilities 0.0% 0.5% 1.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total long-term liabilities 35.4% 37.8% 40.1% 25.0% 26.2% 26.5% 27.0% 27.5% 27.8% 28.3% Total Liabilities 100.4% 107.3% 110.1% 93.3% 97.2% 98.1% 99.7% 101.2% 102.5% 103.9% Shareholder's Equity Common Equity 93.7% 114.7% 127.0% 137.6% 148.3% 158.9% 169.5% 180.1% 190.7% 201.3% Treasury shares at cost 317.8% 357.2% 405.7% 440.8% 473.4% 503.4% 531.0% 558.6% 591.2% 628.8% Accumulated other comprehensive income (loss) Retained earnings 442.3% 471.9% 494.7% 534.8% 577.1% 620.1% 664.1% 708.9% 754.5% 800.8% Total shareholders' equity 194.1% 196.8% 178.9% 191.3% 208.5% 228.8% 252.6% 277.3% 297.7% 313.8% Total liabilities & shareholders' equity 294.6% 304.1% 289.0% 284.6% 305.7% 326.8% 352.3% 378.5% 400.1% 417.8%

Total Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Check Point Software Technologies Historical Cash Flow Statement

Fiscal Years Ending Dec. 31 2017 2018 2019 Cash flow from operating activities Net income 802.9 821.3 825.7 Adjustment to Net Income Depreciation of property & equipment 12.9 16.4 16.7 Amortization of premium & accretion of discount on marketable securities, net 20.0 13.6 2.0 Realized loss (gain) on sale of marketable securities, net 0.2 1.8 -0.7 Amortization of intangible assets 3.8 4.4 7.3 Stock-based compensation 87.5 89.3 106.7 Deferred income tax expense (benefit) 64.6 16.3 9.5 Trade receivables, net 6.3 -21.8 -0.4 Decrease in prepaid expenses & other assets 5.6 2.0 15.5 Trade payables -7.8 6.6 -4.8 Employees & payroll accruals -4.5 20.1 39.8 Income tax accrual & accrued expenses & other current liabilities -3.5 28.4 34.6 Deferred revenues 121.0 145.0 48.7 Other adjustments 0.7 -0.2 3.7 Net cash flow from operating activities 1109.6 1143.1 1104.3

Cash flow from investing activities Proceeds from maturity of marketable securities 1363.7 1464.4 2140.1 Proceeds from sale of marketable securities 66.1 150.2 167.4 Proceeds from short-term bank deposits 106.6 - 4.9 Investment in marketable securities -1686.4 -1767.5 -2188.9 Investment in short-term bank deposits - -5.0 - Cash paid in conjunction with acquisitions, net of cash acquired - -154.9 -37.6 Purchase of property & equipment -28.8 -17.1 -25.9 Net cash flows from investing activities -178.8 -330.0 60.0

Cash flows from financing activities Proceeds from issuance of treasury shares upon exercise of options 127.5 353.5 95.3 Purchase of treasury shares at cost -995.3 -1103.9 -1278.0 Payments related to shares withheld for taxes -5.4 -4.6 -6.0 Net cash flows from financing activities -873.2 -755.0 -1188.7 Increase (decrease) in cash & cash equivalents 57.6 58.1 -24.4 Cash & cash equivalents, beginning of year 187.4 245.0 303.6 Cash & cash equivalents, end of year 245.0 303.7 279.2 Check Point Software Technologies Forecasted Cash Flow Statement

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E 2025E 2026E Cash & cash equivalents, beginning of the year 279.2 173.0 554.5 959.6 1443.2 1940.3 2349.5

Operating Activities: Net Income 800.0 843.9 857.4 877.6 893.9 908.8 924.9 Depreciation of PP&E 15.3 15.3 15.3 15.3 15.3 15.3 15.3 Trade Receivables -27.7 -21.3 -4.3 -8.8 -8.0 -6.6 -8.0 Prepaid Expenses & Other Current Assets -12.1 -2.9 -0.6 -1.2 -1.1 -0.9 -1.1 Deferred Tax 10.3 -2.5 -0.8 -1.1 -0.9 -0.8 -0.9 Trade Payable 2.6 0.8 0.2 0.3 0.3 0.2 0.3 Employee & Payroll Accruals -21.3 6.9 1.4 2.8 2.6 2.2 2.6 Deferred Revenue -67.1 38.4 7.7 15.9 14.4 12.0 14.5 Accrued Expenses 50.1 9.3 1.9 3.8 3.5 2.9 3.5 Deferred Revenue, Long -Term -100.2 11.2 2.2 4.6 4.2 3.5 4.2 Income Tax Accrual -168.6 12.3 3.8 5.7 4.6 4.2 4.5 Other Liabilities -31.3 0.0 0.0 0.0 0.0 0.0 0.0 Other Assets 42.3 -2.1 -0.4 -0.9 -0.8 -0.7 -0.8 Cash Provided by Operating Activities 492.3 909.2 883.8 914.1 927.9 940.1 959.0

Investing Activities: Capital Expenditures -31.9 -31.9 -31.9 -31.9 -31.9 -31.9 -31.9 Marketable Securities, Short Term -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 Marketable Securities, Long Term -20.8 0.0 0.0 0.0 0.0 0.0 0.0 Intangible Assets 8.0 8.0 6.9 5.2 4.9 4.9 4.9 Cash Provided By Investing Activities -46.4 -25.5 -26.7 -28.4 -28.7 -28.7 -28.7

Financing Activities: Common Equity 147.9 147.9 147.9 147.9 147.9 147.9 147.9 Treasury Stock -700.0 -650.0 -600.0 -550.0 -550.0 -650.0 -750.0 Cash Provided by Financing Activities -552.1 -502.1 -452.1 -402.1 -402.1 -502.1 -602.1

Cash @ Beginning of the Year 279.2 173.0 554.5 959.6 1443.2 1940.3 2349.5 Cash Provided (Used) During the Year -106.2 381.5 405.0 483.6 497.1 409.3 328.2 Cash @ End of the Year 173.0 554.5 959.6 1443.2 1940.3 2349.5 2677.7 Check Point Software Technologies Value Driver Estimation

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E

NOPLAT: Total revenues 1854.7 1916.5 1994.8 2029.2 2111.6 2128.2 2162.3 2193.1 2218.9 2249.9 Total cost of revenues 213.0 201.4 215.4 210.0 213.7 209.9 208.4 210.4 211.3 213.0 Research & development, net 192.4 211.5 239.2 248.2 258.3 260.3 264.5 268.3 271.4 275.2 Selling & marketing expense 433.4 500.9 552.7 573.5 590.9 595.6 605.1 613.7 620.9 629.6 General & administrative expense 92.0 88.9 105.7 104.6 108.8 109.7 111.4 113.0 114.3 115.9 Total operating expenses 930.7 1002.7 1113.0 1136.3 1171.7 1175.5 1189.4 1205.5 1218.0 1233.8 Implied Interest in Year 1 Payments 0.8 0.9 1.2 1.3 1.5 1.8 2.0 2.3 2.5 2.7 EBITA 923.1 912.8 880.6 894.2 941.4 954.5 974.8 989.9 1003.4 1018.9

Marginal Tax Rate 17.0% 16.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%

Taxes (benefit) on income 168.0 157.5 136.7 130.2 137.4 139.6 142.9 145.5 147.9 150.6 Tax on Operating Lease Interest 0.1 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.4 Tax Shield on Interest Expense 4.7 3.7 1.8 2.5 1.9 2.0 2.0 2.0 2.1 2.1 Tax on Interest or Investment Income 12.7 14.2 13.1 7.8 7.7 8.2 8.7 9.3 9.9 10.4 Tax Shield on Amortized Debt Expense 3.4 2.2 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Tax on Any Non-Operating Income 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Adjusted Taxes 163.6 149.4 125.9 125.2 131.8 133.6 136.5 138.6 140.5 142.6

Change in deferred taxes 64.6 16.3 9.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0

NOPLAT 824.2 779.6 764.2 769.0 809.6 820.9 838.4 851.3 862.9 876.2

Invested Capital (IC): Cash 199.6 206.2 214.6 218.3 227.2 229.0 232.7 236.0 238.7 242.1 Accounts Receivable 472.2 495.4 495.8 523.5 544.8 549.1 557.8 565.8 572.4 580.5 Prepaid Expenses 81.5 74.7 59.1 71.2 74.1 74.7 75.9 77.0 77.9 79.0 Total Current Assets 753.3 776.3 769.5 813.1 846.1 852.8 866.4 878.8 889.1 901.5

Trade Payable 12.2 20.8 15.9 18.5 19.3 19.4 19.7 20.0 20.3 20.5 Employee payroll accruals 139.8 157.0 190.9 169.6 176.5 177.9 180.7 183.3 185.5 188.1 Deferred Revenue 878.3 980.2 1011.9 944.8 983.2 990.9 1006.8 1021.2 1033.2 1047.6 Accrued Expenses & other current liabilities 176.6 174.0 178.0 228.1 237.4 239.3 243.1 246.6 249.5 252.9

Net PP&E 77.8 78.5 87.7 104.2 120.8 137.3 153.9 170.4 187.0 203.5

Intangible Assets 18.4 41.0 42.8 34.8 26.8 19.9 14.7 9.8 4.9 0.0 PV of Operating Leases 20.3 26.7 27.6 32.8 37.9 43.1 48.3 53.5 58.7 63.9 Invested Capital: 693.1 748.6 749.6 756.8 794.3 813.9 840.2 866.0 890.2 916.0

Free Cash Flow (FCF): NOPLAT 824.2 779.6 764.2 769.0 809.6 820.9 838.4 851.3 862.9 876.2 Change in IC 60.7 55.5 1.0 7.2 37.5 19.6 26.4 25.7 24.3 25.8 FCF 763.5 724.2 763.2 761.8 772.1 801.3 812.0 825.6 838.7 850.4

Return on Invested Capital (ROIC): NOPLAT 824 780 764 769 810 821 838 851 863 876 Beg. IC 632.4 693.1 748.6 749.6 756.8 794.3 813.9 840.2 866.0 890.2 ROIC 130.3% 112.5% 102.1% 102.6% 107.0% 103.4% 103.0% 101.3% 99.6% 98.4%

Economic Profit (EP): Beg. IC 632.4 693.1 748.6 749.6 756.8 794.3 813.9 840.2 866.0 890.2 x (ROIC - WACC) 1.3 1.1 1.0 1.0 1.0 1.0 1.0 1.0 1.0 0.9 EP 795.3 748.0 730.0 734.7 775.0 784.6 801.2 812.9 823.3 835.5 Check Point Software Technologies Weighted Average Cost of Capital (WACC) Estimation

Cost of Equity: ASSUMPTIONS: Risk-Free Rate 0.88% 10-year Treasury Bond Beta 0.69 Average of 2, 3, 4, 5-year weekly Equity Risk Premium 5.35% Implied ERP on November 1st from Damodaran Cost of Equity 4.57%

Cost of Debt: Risk-Free Rate 0.88% 10-year Treasury Bond Implied Default Premium 3.87% Bond yield - Risk Free Rate Pre-Tax Cost of Debt 4.66% HPE YTM on 30-year bond Marginal Tax Rate 14.00% After-Tax Cost of Debt 4.01%

Market Value of Common Equity: MV Weights Total Shares Outstanding 145.47 Current Stock Price $119.56 MV of Equity 17,392.03 99.84%

Market Value of Debt: Short-Term Debt 0 Current Portion of LTD 0 Long-Term Debt 0 PV of Operating Leases 27.55 MV of Total Debt 27.55 0.16%

Market Value of the Firm 17,419.59 100.00%

Estimated WACC 4.57% Check Point Software Technologies Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth of NOPLAT 1.00% CV Year ROIC 98% WACC 4.57% Cost of Equity 4.57%

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E 2025E 2026E

DCF Model: Free Cash Flow (FCF) 761.8 772.1 801.3 812.0 825.6 838.7 Continuing Value (CV) 24295.1 PV of FCF 728.5 706.1 700.7 679.1 660.3 641.4 18581.3

Value of Operating Assets: 22697.5 PV Operating Leases -27.6 Marketable Securities 3668.9 Excess Cash 239.3 ESOP -488.7 Underfunded severance liability -5.0

Value of Equity 26084.4 Shares Outstanding 145.5 Intrinsic Value of Last FYE $179.32 Implied Price as of Today $ 186.48

EP Model: Economic Profit (EP) 734.7 775.0 784.6 801.2 812.9 823.3 835.5 Continuing Value (CV) 23404.8 PV of EP 702.6 708.8 686.2 670.0 650.2 629.7 17900.4

Total PV of EP 21947.8 Invested Capital (last FYE) 749.6 Value of Operating Assets: 22697.4 PV Operating Leases -27.6 Marketable Securities 3668.9 Excess Cash 239.3 Underfunded severance liability -5.0 ESOP -488.7 Value of Equity 26084.3 Shares Outstanding 145.5 Intrinsic Value of Last FYE $179.31 Implied Price as of Today $ 186.48 Check Point Software Technologies Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E 2025E 2026E

EPS $ 5.66 $ 6.11 $ 6.32 $ 6.55 $ 6.75 $ 6.95 $ 7.18

Key Assumptions CV growth of EPS 1.00% CV Year ROE 15.31% Cost of Equity 4.57%

Future Cash Flows P/E Multiple (CV Year) 26.17 EPS (CV Year) $ 7.18 Future Stock Price $ 187.99 Dividends Per Share 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Discounted Cash Flows $ 143.763

Intrinsic Value as of Last FYE $ 143.76 Implied Price as of Today $ 149.51 Check Point Software Technologies Relative Valuation Models

EPS EPS Est. 5yr Ticker Company Price 2021E 2022E P/E 21 P/E 22 EPS gr. PEG 21 PEG 22 PANW Palo Alto Networks $221.19 $5.61 $6.89 39.43 32.10 15.9 2.49 2.03 FTNT Fortinet $110.37 $3.59 $4.12 30.74 26.79 15.4 2.00 1.74 JNPR Juniper Networks $19.72 $1.66 $1.82 11.88 10.84 3.5 3.39 3.10 LDOS Leidos Holdings, Inc. $91.40 $5.31 $6.12 17.21 14.93 10.8 1.59 1.38 CSCO Cisco $35.90 $0.84 $0.87 42.74 41.26 4.7 9.09 8.78 Average 28.40 25.19 3.71 3.40

CHKP Check Point Software Technologies$121.23 $6.11 $6.32 19.9 19.2 4.2 4.7 4.6

Implied Relative Value: P/E (EPS21) $ 173.45 P/E (EPS22) $ 159.09 PEG (EPS21) $ 95.36 PEG (EPS22) $ 90.43 Check Point Software Technologies Key Management Ratios

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Liquidity Ratios: Current ratio 1.63 1.74 1.53 1.52 1.75 2.02 2.33 2.65 2.90 3.08 Quick Ratio 1.63 1.74 1.53 1.52 1.75 2.02 2.33 2.65 2.90 3.08 Cash Ratio 0.20 0.23 0.20 0.13 0.39 0.67 1.00 1.32 1.58 1.77

Asset-Management Ratios: Asset Turnover 0.35 0.34 0.34 0.35 0.36 0.34 0.32 0.30 0.29 0.28 Fixed Asset Turnover 26.57 24.53 24.00 21.14 18.77 16.49 14.85 13.53 12.42 11.52 Inventory Turnover 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Financial Leverage Ratios: Debt Ratio 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Equity Ratio 0.66 0.65 0.62 0.67 0.68 0.70 0.72 0.73 0.74 0.75 Debt to Equity Ratio 0.52 0.54 0.62 0.49 0.47 0.43 0.39 0.37 0.34 0.33

Profitability Ratios: Gross profit margin 88.5% 89.5% 89.2% 89.7% 89.9% 90.1% 90.4% 90.4% 90.5% 90.5% Return on Asset 14.7% 14.1% 14.3% 14.1% 13.8% 13.1% 12.5% 11.8% 11.4% 11.1% Return on Equity 22.3% 21.8% 23.1% 21.0% 20.3% 18.8% 17.4% 16.2% 15.3% 14.8%

Payout Policy Ratios: Dividend Payout Ratio (Dividend/EPS) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total Payout Ratio ((Divs. + Repurchases)/NI) 124.0% 134.4% 154.8% 87.5% 77.0% 70.0% 62.7% 61.5% 71.5% 81.1% Check Point Software Technologies Present Value of Operating Lease Obligations

Fiscal Years Ending Dec. 31 2012 2013 2014 2015 2016 2017 2018 2019 Year 1 4.9 4.9 6.0 6.1 8.9 7.8 7.8 10.4 Year 2 5.8 2.9 3.6 4.5 5.1 4.7 6.9 6.4 Year 3 5.8 2.9 1.2 3.5 3.4 3.0 5.2 6.4 Year 4 0.0 0.0 0.3 3.0 1.1 2.0 4.2 3.2 Year 5 0.0 0.0 0.1 1.1 0.1 1.7 3.7 3.2 Thereafter 0.0 0.0 0.1 0.1 0.0 3.8 2.7 1.4 Total Minimum Payments 16.5 10.7 11.2 18.3 18.6 23.1 30.4 30.9 Less: Cumulative Interest 1.5 0.8 0.8 1.8 1.5 2.8 3.7 3.3 PV of Minimum Payments 15.0 9.8 10.4 16.4 17.1 20.3 26.7 27.6

Implied Interest in Year 1 Payment 0.7 0.5 0.5 0.8 0.8 0.9 1.2

Pre-Tax Cost of Debt 4.66% 4.66% 4.66% 4.66% 4.66% 4.66% 4.66% 4.66% Years Implied by Year 6 Payment 1.0 1.0 1.0 1.0 1.0 2.2 1.0 1.0 Expected Obligation in Year 6 & Beyond 0 0 0.085 0.1 0 1.692 2.656 1.4

Present Value of Lease Payments PV of Year 1 4.7 4.7 5.7 5.9 8.5 7.5 7.5 9.9 PV of Year 2 5.3 2.6 3.3 4.1 4.6 4.3 6.3 5.8 PV of Year 3 5.1 2.5 1.0 3.0 3.0 2.7 4.5 5.5 PV of Year 4 0.0 0.0 0.2 2.5 0.9 1.7 3.5 2.7 PV of Year 5 0.0 0.0 0.1 0.9 0.1 1.3 2.9 2.5 PV of 6 & beyond 0.0 0.0 0.1 0.1 0.0 2.8 2.0 1.1 Capitalized PV of Payments 15.0 9.8 10.4 16.4 17.1 20.3 26.7 27.6 Check Point Software Technologies Effects of ESOP Exercise and Share Repurchases on Common Stock Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 10,664,851.0 Average Time to Maturity (years): 6.00 Expected Annual Number of Options Exercised: 1,777,475

Current Average Strike Price: $ 83.19 Cost of Equity: 9.00% Current Stock Price: $119.56

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E 2025E 2026E Increase in Shares Outstanding: 1,777,475 1,777,475 1,777,475 1,777,475 1,777,475 1,777,475 1,777,475 Average Strike Price: $ 83.19 $ 83.19 $ 83.19 $ 83.19 $ 83.19 $ 83.19 $ 83.19 Increase in Common Stock Account: 147,868,159 147,868,159 147,868,159 147,868,159 147,868,159 147,868,159 147,868,159

Change in Treasury Stock 700,000,000 650,000,000 600,000,000 550,000,000 550,000,000 650,000,000 750,000,000 Expected Price of Repurchased Shares: $ 119.56 $ 130.32 $ 142.05 $ 154.83 $ 168.77 $ 183.96 $ 200.51 Number of Shares Repurchased: 5,854,801 4,987,707 4,223,888 3,552,199 3,258,898 3,533,418 3,740,386

Shares Outstanding (beginning of the year) 145,467,329 141,390,003 138,179,771 135,733,359 133,958,635 132,477,212 130,721,270 Plus: Shares Issued Through ESOP 1,777,475 1,777,475 1,777,475 1,777,475 1,777,475 1,777,475 1,777,475 Less: Shares Repurchased in Treasury 5,854,801 4,987,707 4,223,888 3,552,199 3,258,898 3,533,418 3,740,386 Shares Outstanding (end of the year) 141,390,003 138,179,771 135,733,359 133,958,635 132,477,212 130,721,270 128,758,359 Check Point Software Technologies Valuation of Options Granted under ESOP

Current Stock Price $119.56 Risk Free Rate 0.88% Current Dividend Yield 0.00% Annualized St. Dev. of Stock Returns 20.03%

Average Average B-S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Range 1 10,664,851 83.19 6.00 $ 45.82 $ 488,700,469 Range 2 Range 3 Range 4 Range 5 Range 6 $ - Range 7 $ - Range 8 $ - Range 9 $ - Total 10,664,851 $ 83.19 6.00 $ 45.82 $ 488,700,469