Krause Fund Research Spring 2020 Krause Fund Research ... · However, we do project a market and...

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Krause Fund Research Spring 2020 Krause Fund Research Spring 2020

Check Point Software Technologies LTD. (NASDAQ: CHKP) Technology – Software and Services

April 18, 2020 Stock Rating

BUYStock Rating:

Analysts: Adam Burghduff – [email protected] Ryan Long – [email protected]

Current Price: $106.12

Target Price: $155-$165

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Investment Thesis We recommend a buy rating for Check Point Software Technologies Ltd. Check Point will continue to see growth during the economic downturn and is positioned well with its high cash reserves. Check Point’s strategy of switching customers from products and licenses to subscription-based solutions will drive this growth. The stock offers between a 32% and 36% upside for investors. Drivers of Thesis: - Security subscription revenue will continue to rise as companies look to consolidate their security solutions under one main platform, paving the way for Check Point’s Infinity Architecture. We believe subscription services revenue will grow at a rate of 7.00% in 2020 peaking at 15.00% in 2023 due to most customers moving over to subscriptions by 2023. We believe it will take 4 years to convert most product and license customers over because Check Point will need to reeducate customers on the perks of a subscription, and this will require 14.00% of revenues peaking at 17.00% for research and development costs. - Research and Development Expense will determine Check Point’s future market share as increases to subscription customers necessitate higher research and development due to the correlation with customer retention. R&D Expense will continue to rise and rise at a rate of 14.00% until 2023 when it will be increased to 17.00% to ensure retainment of subscription customers. This rise will happen due to increased competition in this industry and the need to always be at the top or the product is worthless. Risks of Thesis: - The outbreak of COVID-19 has resulted in volatility in the markets and business closures around the globe. Supply chains have been disrupted and it is possible Check Point’s operations will be adversely affected as they may not be able to distribute products or receive the required inputs from third parties. We made our projections assuming current distribution and supply interruptions, thus operating expenses could be greater and sales lower than forecasted. - Check Point may continue to lose more market share and as a result need greater increases to selling and marketing and research and development expenses. Due to the competitive nature of the industry, innovation and marketing strategy is of critical importance. Therefore, costs could be greater than our forecasted average selling and marketing expense of 24.50% of revenues and research and development of 14.83% of revenues.

Forecast Outcomes Discounted Cash Flow: $159 Dividend Discount Model: $168 Relative P/E Model: $163

Company Overview Check Point Software Technologies, headquartered in Tel Aviv, provides cybersecurity solutions to corporate enterprises and governments around the world. Its security solutions protect consumers from 5th-generation cyber-attacks and beyond consisting of malware, ransomware, and other targeted attacks8.

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Statistical Highlights Price Data

Current Price $106.12 52 Week High $121.5 52 Week Low $80.06 200 Day Moving Average $109.02

Key Statistics

Market Cap $15,981 Million Shares Outstanding 150.6 Million Price to Earnings 19.36 Beta WACC

0.79 5.52%

EPS 2019 $5.48 Revenues 2019 $1,994.8 Million Net Income 2019 $825.7 Million

Profitability Ratios

ROA: 14.32% ROE: 23.14% Operating Margin: 44.20% Profit Margin: 41.39%

Earnings Estimates

EPS 2020 2021 2022 FORECAST 5.93 6.35 6.99 CONSENSUS14 5.53 5.91 6.82

Data from: Fact Set14

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Executive Summary As of April 18, 2020, our team has issued a BUY rating for Check Point Technologies Ltd. (NASDAQ: CHKP) for the University of Iowa Krause Fund. We believe Check Point will continue to see growth during the economic downturn, though not as high as the rest of our forecast period. Check Point is positioned well with its high cash reserves and should continue to see an increase in revenue as 5th generation cyber-attacks persist, and hackers continue to develop 6th generation attacks. With more companies moving over to security subscriptions from products and services, we predict Check Point will be able to expand this segment of their business rapidly. We built our forecasted statements with security subscription revenue increasing by an average of 10.71% year over year growth in our forecast period and 4.25% in perpetuity. This was one of the significant factors in the forecasted intrinsic value of $159 per share in the discounted cash flow and economic profit model. We believe this is in the correct range of $155-$165 per share. Our forecasted target price is 32% to 36% higher than the price of the stock today, leading us to issue a buy rating.

Economic Outlook Coronavirus (COVID-19) COVID-19 has affected many aspects of business, including the shift to a work from home model. This brings with it many new challenges and increased demand for network security. There has been a 667.00% increase in phishing emails since the outbreak of COVID-192. We believe this will be a significant factor in our projection of 12.35% year over year growth in security subscriptions due to higher demand for Check Point's SandBlast platforms. Check Point has been at the forefront of network security issues, finding a bug in the popular and growing app Zoom that allowed unauthorized users to join Zoom meetings3. Check Point has also developed mobile platforms of its Sandblast Agent that can be implemented in many work-at-home environments. COVID-19 created a higher demand for network security services, and with Check Point being ready with their Sandblast platform, they will gain more customers, which will lead to a long-term increase in revenue.

The Coronavirus pandemic has forced nearly all companies to institute work from home practices. These practices have led 7 out of 10 organizations to believe they will need to increase spending in cybersecurity22. Hackers have been exploiting the pandemic, and we believe that Check Point is positioned with its SandBlast Platforms to capitalize on the increased need for cybersecurity. As COVID-19 spreads, apps are being developed to track a person's contact with the virus. However, many privacy concerns come into play as technology is used to trace and monitor individuals. Cybersecurity will be of the utmost importance as a breach of data could have catastrophic side effects. We believe spending on cybersecurity services will increase as much as 11% for the industry at large this year, due to COVID-19, and Check Point will benefit massively25.

Data from Statista25

Check Point also faces some potential risks from this pandemic. With many businesses forced to shut down due to health and safety concerns, the impacts on supply chains could be devastating, with businesses lacking critical inputs for their products and services. Since Check Point’s core business heavily relies on third parties, they may fall behind other providers as shutdowns around the world continue, and they cannot connect with their customers, partners, and suppliers. However, we believe Check Point is positioned well with no outstanding corporate debt and high cash reserves of 279 million, 14.00% of revenues, and will continue to innovate and maintain security solutions. The disruption may hurt them initially, but even with it built into our model for 2020 and 2021, we forecast a significant upside for Check Point in the coming years.

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Government Policy Government policy forces businesses to conform to new laws, regulations, and political uncertainty. If a company does not adapt to a new policy or political atmosphere, it can leave them behind in the ever-changing world. Throughout time, conflict has persisted between Gaza and Israel. This has led to both sides taking dramatic actions such as military force. Check Point is Headquartered 40 miles away from the Gaza Strip in Tel Aviv, and there is uncertainty if attacks from Hamas will affect business operations. In Check Point's recent 20-F filing, they listed these attacks as a potential risk as crucial personnel may be called to mandatory military service8. With the outbreak of COVID-19 continuing to spread, Gaza claims they are not receiving sufficient resources to stop the pandemic and are threatening hostile action if Israel does not take specific steps18. We believe these new threats will not affect Check Point's core business due to Israel's military presence and historical ability to prevail against these attacks.

The withdrawal of the United Kingdom from the European Union could potentially affect Check Point's business. We estimate that the cost of leaving the EU will result in a 2.00% decline in GDP for the UK. This could lead to less corporate spending on subscriptions like cybersecurity. Events like Brexit and trade wars can lead to new barriers for Check Point, such as the laws regarding the import and export of encryption technology. We believe this current international climate will be a factor in the increase of selling and marketing expenses to 27.50% of revenues due to the increased need to acquire permits and exceptions to sell to a variety of different countries in this ever-changing legal landscape. This can be very costly and even result in a loss of sales as the business cannot function without getting essential resources promptly.

GDP Economic growth will continue to slow for the foreseeable future due to the Coronavirus pandemic. The pandemic has brought record unemployment claims with claims rising over 6.6 million the week of April 413.This increase in unemployment will lead to significant decreases in GDP. Looking at Okun's law, which looks at the relationship between GDP and unemployment, we would expect that a 1.00% increase in unemployment would lead to a 2.00% decrease in GDP12. We predict

GDP will fall dramatically in Q2 by 28.00% due to the nature of these massive unemployment claims and overall market uncertainty surrounding the virus. However, we do project a market and economic rebound in Q4 of 2020 or Q1 of 2021, which would bring GDP back to the standard growth rate of around 2.00%. This drop in GDP and an increase in unemployment could potentially lead to stagflation in the economy. We forecasted only a 2.00% increase in software updates and services instead of the typical 3.00% due to the drop in GDP, which could potentially affect companies' liquidity used for non-essential services. Although this will initially hurt growth to software updates and services, we believe they will rebound to a 3.00% growth in 2021.

Data from: Statista26

Non-US GDP is also a significant factor for Check Point's operations. In 2019, 54.00% of Check Point's revenue came from countries outside the United States8. This means Check Point will be profoundly affected in other countries with significant decreases in GDP in Q2 of 2020. We project a 5.00% drop in year over year global GDP due to the Coronavirus Pandemic. This will stunt the already massive growth in security subscriptions for the software industry as companies look to use the products or licenses they already own for another year. We believe Check Point will only see a 7.00% growth in security subscriptions versus a 13.00% growth rate in 2018 and 2019.

Exchange Rates Exchange rates are an essential metric in the comparison of different economies. Check Point may be a foreign company, but files with the SEC and reports in US dollars. In 2019, 46.00% of Check Point's expenses were

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contracted in euros or Israeli shekels8. Check Point also sees about 42.00% of their revenue from Europe8. This makes the exchange rate between the US dollar and these currencies important to Check Point's overall financial standing. We forecast that the US dollar will weaken due to recent Federal Reserve actions and the weakening of the US dollar before the pandemic. The euro currently maintains an exchange rate of around 1.09 US dollars29. If the US dollar were to weaken more, Check Point would stand to gain due to its increased presence in Europe. Check Point receives payment in Euros and Shekels, which means they would now be able to receive more dollars for each euro and shekel.

Data from: forecast.org29

In 2019, Check Point entered into hedges against the risk of changing exchange rates for 1.3 million and had outstanding forwards of 38 million8. If the dollar were to weaken too much versus other currencies, Check Point would have to increase its operating expenses. We believe that the US dollar will decline, and because of this, have considered increased costs in our model, reflecting the weakening of the dollar. We believe that Check Point's operating expenses could rise as much as 6.00% due to fluctuations in currency with only 10 of Check Point’s 70 offices being in the United States11. Check Point does have more of an exposure to currency fluctuations than some companies, but we believe that Check Point has taken the steps necessary to mitigate this risk as much as they can. However, with the Coronavirus ensuing, caution must be taken when weighing the effects of exchange rates on Check Point.

Capital Markets Outlook The world economy is in a unique place. In recent times, there has never been a pandemic like the Coronavirus,

and there is much uncertainty regarding the markets. Through our research, we believe GDP will contract by 28.00% in Q2. However, as the world shifts back to normalcy, so will the markets, and we will see a dramatic increase of GDP in Q4 of 2020 and Q1 of 2021. Despite massive increases in unemployment and decreases in GDP in the short term, we believe the cybersecurity industry is positioned well. Companies need security more than ever as the shift to a work from home environment, and Check Point will be a leader in securing networks.

Industry Outlook Industry Description The software industry is divided into two main subcategories, systems software and application software. Systems software runs hardware and application software that functions to provide a platform for other software, including operating systems, database software, and security software. Application software is designed for the end-user and enhances user experience and efficiency. It includes enterprise resource planning, customer relationship management, communication and collaboration, content creation, and software suites. The cybersecurity industry is a sub-industry of the software industry and protects networks, devices, programs, and data from attacks caused by unauthorized users. Cybersecurity companies are mostly involved in system software, providing security infrastructure to clients. However, companies are moving towards more application software as clients require more access to their security solutions. Cybersecurity products can also be differentiated between on-site solutions and cloud-based solutions. Revenues in this industry come from security subscriptions, products and licensees, and updating and maintenance fees. In regard to products and licenses, companies pay a substantial upfront cost to acquire the application on their own systems and usually pay around 20.00% annually of the initial price to maintain it27. Maintenance revenue allows companies to upgrade or improve the software they already own. Customers usually pay an annual fee to use the software and receive updates as new security measures are implemented in a security subscription model. Customers typically have a 35.00% retention rate in this

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model known as SaaS, which is a strong reason why businesses are shifting to subscriptions1. We believe that companies will continue moving from products to subscriptions as the margins are much better, and the retention rate is high, resulting in better profits in the long term. We forecasted a decrease for products and licenses at an average of 5.00% each year in the forecast period while security subscriptions are increasing at an average of 10.21% each year. Recent Developments and Trends As the world shifts to its new norms, hackers are exploiting fears of the pandemic, causing an uptick in the success rate for hackers23. Stress levels have never been higher, and as a result, cybercriminals are relentlessly attacking. Hackers try to imitate official websites and create fake links that release viruses to steal credentials, payment details, and other personal information. Web phishing is currently the most prominent, but mobile phishing is on the rise as people are spending more time on their phones during the pandemic4. As companies shift to a work from home environment, cybersecurity has never been more critical as hackers try to exploit the pandemic for their profit. 73% of security professionals have seen an increase in security threats since the outbreak19. Furthermore, 95% of companies claim they are facing increased security challenges, while 61% are worried about making rapid changes to the remote working environment19. We believe the industry will ultimately benefit from the outbreak of the pandemic as more companies realize how vital it is to protect data.

Data from: 451 Research Blogs30

Recently, acquisition activity within the industry has been driven by a trend of employees using their own mobile devices in the workplace. The usage of personal devices for work raises security concerns, increasing the need for large companies to acquire smaller companies that have well-established mobile security software. We believe that M&A activity will continue to increase. Even amid the Coronavirus pandemic, cybersecurity companies continue to raise money, most lately with Awake Security raising $36 million in a Series C funding21. This trend will continue for the foreseeable future as cyber-attacks increase, and security comes in higher demand. Markets and Competition

There are low barriers to entry in the cybersecurity industry, as little capital is needed. There are always companies innovating, and creating new products, creating much competition in the industry. However, the industry is expected to grow significantly over the next five years to 2025 at CAGR of 11.00%17. As a result, Check Point's direct competitors include Cisco Systems, Inc., Juniper Networks, Inc., Fortinet Inc., and Palo Alto Networks Inc. Fortinet and Palo Alto are the closest pure-play firms8. Fortinet "develops and markets cybersecurity software and appliances and services, such as firewalls, anti-virus, intrusion prevention, and endpoint security"15. Palo Alto Networks secures enterprises and cloud security with its Strata, Prisma, and Cortex solutions. They also compete against several blue-chip and specialty firms, including Microsoft Corporation, International Business Machines Corporation, Hewlett-Packard Enterprise Company, and FireEye, Inc. The implications of having larger competitors means Check Point might lag in developing technologies and not have as many meaningful relationships as they do not have the same level of backing as giant conglomerates. Large competitors are also more diversified and can withstand changes in the economy that negatively impact the security industry. Large-cap competitors can offer a lower price and decrease margins as they have other revenue streams. There are many smaller firms that also compete with Check Point in specific products they offer.

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Check Point is both a leader and an innovator in the cybersecurity industry. However, Check Point has fallen behind in both its leader and innovator titles according to Gartner Research16. In the network firewalls category, one of the largest in the industry, Check Point is beaten by both Fortinet and Palo Alto Networks, Check Point's two closest rivals. Although Check Point may trend behind the current industry leaders, we believe they are in a much better position due to their profitability of 41.39% of revenues versus Fortinet's 15.15% and Palo Alto's -2.82%14. We project Check Point to stay strong in this market of uncertainty, with revenues continuing to grow at 3.05% for 2020 and even higher at 3.97% and 5.38% in 2021 and 2022, respectively. Check Point may no longer be the up and coming innovative leader, but we believe it is the best of both worlds as a seasoned innovator with strong financials in a high growth industry.

Retrieved from: Gartner Analytics16

Where a company derives its revenues from is important to the longevity and stability of cash flows. Companies obtaining sales from larger corporations are better positioned, as they have more certainty that customers will not default on their payments and continue to operate during periods of hardship. On the other hand, companies that extract revenue from smaller and start-up firms have less stable cash flows as there is less certainty customers will continue to operate and be able to pay for products and services. Check Point derives a great portion of its revenues from large companies. Check

Point has the largest number of customers with revenue more than a billion dollars, making them well-suited for an economic downturn31. This assumption is built into our model as Check Point will continue to see year over year increases in net income and have overall stability in the growth of revenue at about 1.95% in the continuing value period.

Data from: Enlyft Market Intelligence31

Expenses as a Percentage of Sales Sales and marketing are a driver of revenue in this industry as companies need to market new products and services to consumers constantly. This is very much a relationship-driven industry, resulting in a need to spend on the customer to ensure retention and contentment with security solutions and products. Once a meaningful relationship has been established, customers are unlikely to switch providers. Checkpoint spends the least compared to competitors on selling and marketing; this is due to the fact that they have established a credible reputation and have been in the industry longer than others. We project Check Point will spend, on average, 24.50% of revenues on selling and marketing over the forecast period. Research and development is vital in the cybersecurity industry, as new attacks are always affecting business operations. Therefore, to stay ahead of hackers, cybersecurity companies must continue to innovate and devote substantial resources to research and development. Research and development show how companies are creating differentiated solutions to cybercrimes. Check Point has historically spent less on research and development and has lost market share as a result24. However, we believe their focus on security

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subscriptions and selling Check Point Infinity Architecture will result in higher growth. We project Check Point will spend, on average, 14.83% of revenues on research and development over the forecast period, 3.00% higher than it currently spends. Check Point has also been able to maintain one of the lowest general and administrative costs compared to competitors. Check Point has the lowest operating expenses as a percentage of sales, so even though their revenues might not be growing as high as competitors, their net income is higher, which results in greater earnings per share and, ultimately, shareholder value.

Data from: Mergent32

Revenue and Net Income Per Employee Revenue per employee is a measure of how wisely a company is using its human capital. In the software industry, this is one of the most crucial factors in the overall vitality of the company. In the cybersecurity industry, Check Point is below average with its revenue per employee with around $387,000 in 2019, whereas Palo Alto Networks and others have well over $400,00014. However, Check Point's net income per employee far surpasses the rest of the industry at $160,00014. With Check Point’s significantly higher margin per employee, we believe they will be able to spend more on operating expenses. In 2020, we forecast Check Point increasing its research and development cost from a historical average of 11.00% to 14.00%. We also predict a 2.00% increase in selling and marketing expenses in 2020, leading to an increase in revenues, as marketing is directly correlated with sales. Net income

per employee shows how efficiently a company operates, and Check Point is a leader in the industry. As Checkpoint begins to allocate more on the operating expenses efficiently, it will lead to greater growth and more market share, increasing the bottom line.


Revenue Segments There are three main revenue streams in the cybersecurity industry: products and licenses, subscriptions, and support and maintenance. Products are costly to update and maintain, and as cyber-attacks are evolving and becoming more complex, updating them is inefficient and results in poor security measures. Companies need to have constant updates and a single server securing the entire company, allowing for software to adapt in real-time. Products and licenses are now obsolete in this environment, and we believe Check Point is positioned the best in the industry due to its high non-product-based revenue of about 77%8. Check Point has the highest percentage of support revenue of about 46.50% over the last three years8. With other competitors such as Palo Alto Networks and Fortinet, deriving over 36.00% of revenues from products and licenses14. Check Point derives around 22.00% from products and licenses, leading to over a 14.00% advantage over competitors8. This advantage comes from the low cost of security subscriptions and support

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compared to products and licenses. We forecast Check Point will have a 17.08% average cost of products and licenses compared to the cost of security subscriptions and support at 7.92% and 10.08%, respectively. This will allow Check Point to utilize more capital for research and development and selling and marketing, which will allow them to acquire even more subscription-based customers.

Data From: Fact Set14

Catalysts for Growth and Change As cyber-attacks increase and become more complex cybersecurity will coevolve. The next wave of cyber-attacks will drive growth. Currently, we are witnessing the 5th generation of attacks. As hackers continue to launch attacks, the 6th wave of cybercrime is set to hit soon. Cybercrime has changed rapidly over the past 30 years, and we are due for a new attack in the near future8. Generation 6 attacks can affect everything from cameras to smart cars and are the most sophisticated. A majority of companies are quite vulnerable as they only have security from generation 2 or 3 cyberattacks8. As states are fighting wars via the internet, technology has been leaked into the black market, allowing for cybercriminals and state-backed militias to gather data and infect companies. Moving forward, companies will want security from a consolidated place, leading the way for security architecture, where all the products are integrated. This allows complete protection and all services to be integrated under one platform while mitigating costs. Using multiple vendors and products is costly and leaves gaps where hackers can breach. This is where Check

Point has an advantage over competitors. Check Point recently released Check Point Infinity, which is the "The first consolidated security architecture across networks, cloud, mobile, and IoT, providing the highest level of threat prevention against both known and unknown cyber-threats"9. We believe that Check Point Infinity will lead to major growth in security subscriptions with an average of 10.71% over the forecast period due to Infinity's overall cohesiveness and unified design. With employers realizing employees can be just as effective at home as the workplace, we believe employers will allow for more personnel to work away from the office. Protecting the network and devices away from the office will result in growth within the cybersecurity industry. Employee devices are vulnerable and have key data needing protection. This will result in an increase in sales from Check Point's Sandblast Agent. We predict this will be another contributing factor to the average growth in security and subscriptions of 10.71% over the forecast period. Key Investment Positives and Negatives Positives of this industry include companies moving over to a subscription model, providing steady streams of revenue, and less volatility. The demand for the industry will always be growing as attacks are inevitable. New innovations in artificial intelligence and cloud computing have improved services and allowed for better threat protection. This will lead to high growth in this industry for years to come. We have forecasted this into our model by increasing overall revenues each year until the continuing value period of 1.95%, signaling the industry's current and future growth.


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Industry negatives include that if there were to be a big data breach, it could wipe out a company's reputation overnight and, in turn, lose customers. Currently, there is a shortage of cybersecurity experts and employees; therefore, good talent is expensive and hard to come by, raising costs for firms and decreasing the bottom line. Additionally, increasing regulations make it harder for corporations to develop products and make it more costly due to lawsuits, workarounds, and taxes. Cybersecurity companies must always be on the cutting edge of innovation to protect against evolving attacks; therefore, they have large research and development expenses and thinning margins. This is where Check Point shines as it has the lowest research and development cost between the top three competitors of 11.00%14. Check Point is positioned well with large cash reserves, and we believe Check Point can outmaneuver any negatives-the industry faces in the near future.

Company Outlook Overview and Business Description

Check Point Software Technologies Ltd., headquartered in Tel Aviv, provides cybersecurity solutions to corporate enterprises and governments around the world. Its security solutions protect consumers from 5th-generation cyber-attacks consisting of malware, ransomware, and other targeted attacks. Its products include threat prevention, next-generation firewalls, mobile security, and security management8.

Corporate Strategy Historically, Check Point has relied on products and licenses as a main source of revenue. However, this is no longer viable as products cannot be updated and completely integrated promptly as new attacks are constantly being launched. Therefore, Check Point is switching customers to a security subscription model, allowing customers to have consolidated and complete security that is updated as new attacks form. This model not only produces steady revenues but better services as a result of having a complete security solution. To protect against 6th generation attacks, a single consolidated security management solution should be used. Over the past three years, Checkpoint has increased their subscriptions by 12.71%8. This trend will

continue into the future as they continue to derive a large portion of revenue from Checkpoint Infinity Architecture.

Revenues Check Point obtains revenues from three primary sources: products and licenses, security subscriptions, and software updates and maintenance. Revenues from products and licenses come from Check Point selling hardware and software directly to the customer. This segment will decrease by 5.00% each year in the forecast period as this business model becomes obsolete. In turn, Check Point’s security subscription will grow up to 15.00% in 2022 and 2023 as a majority of customers transition to this business model. The subscription model consists of customers paying a recurring fee for the security solutions Check Point provides. Check Point makes it easy for consumers in this model by allowing them to choose the security solution that fits the needs of the business8. Lastly, Check Point receives revenue from its software updates and maintenance, where customers pay to keep their solutions running with the most current services. This is directly correlated with security subscriptions, and hence we forecasted revenues increasing by 3.00% in 2022 and 2023.


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Other analysts have forecasted an average decline of products and licenses of 2.98% from 2020 to 202414. We have predicted an average decline of 5.00% during the same period. We believe that products and licenses are becoming obsolete faster than original thought, and as the 6th generation of cyber-attacks wage war, obsolete products will not suffice. Additionally, we believe revenue from security subscriptions will grow at an average rate of 12.00% from 2020 to 2024, while analysts say it will grow at 7.15%14. Check Point Infinity Architecture will pave the way for the subscription model, and analysts are underestimating the number of companies moving from products to subscription. We believe that as revenues from products decrease, revenues from subscriptions will increase. Analysts believe revenue from software updates and maintenance will increase by an average of 1.75% from 2020 to 2024, while we forecast revenue growing by 2.80% in this segment14. Software updates and maintenance revenue is directly correlated with subscription revenue; thus, as we predicted higher subscription growth, updates, and maintenance will follow.

Data from: Check Point Technologies8

Recent Financials On February 3, 2020, Check Point released its quarterly 6-k. The company had yearly earnings of $5.48 for 2019 compared to $5.24 in 2018, representing a 4.58% increase in EPS6. This earnings per share growth was derived from the increase in sales of subscriptions and software updates and maintenance of 12.54% and 2.96%, respectively6. Revenues and non-GAAP EPS came in above the midpoint of analyst's expectations.

This is better than expected partly due to Cloudguard and Infinity generating double-digit and triple-digit growth, respectively6. Also, during the quarter, the dollar weakened compared to other currencies received by Check Point, leading to a loss of $4 million6.

Moving forward, Check Point is planning to package more services together, which will result in an increase in sales of security subscriptions, as they already passed 2,500 customers in their cloud security segment6. We believe this will result in software updates and maintenance growing by an average of 2.67% during the forecast period. We forecast this because as more customers are acquired, and subscription revenue increases, updates and maintenance will follow closely. They also acquired Cymplify, which will allow them to better secure the IoT6. This is a reason why we believe security subscription revenues will grow by 12.00% in 2021. As they offer more security solutions to meet customer needs, more companies will switch over to their products, increasing revenues in subscriptions. Revenues for the first quarter of 2020 are expected to be between $475 to $495 million and non-GAAP EPS of $1.16 to $1.22, although it may be lower with the outbreak of COVID-196. We also expect Check Point to continue their research and development as they are at the forefront of innovation. We forecast research and development, increasing to 27.50% of sales.

Product Lines Check Point’s product lines can be separated into six main categories. Check Point Infinity is a fully consolidated security architecture that protects against 5th and 6th generation cyber-attacks. Check Point uses Nano Agent technology to secure all gaps and detect threats immediately. Check Point also offers Network Security. This is Check Point’s SandBlast threat prevention system, and it uses AI to prevent attacks and includes next-generation firewalls, IPS, VPN, WAF, SSL, and Data Security (DLP)8. Check Point’s Threat prevention prevents, and blocks cyberattacks before they occur. Cloud security is another main product line. It manages cloud security for applications such as Salesforce, Office 365, and Box8. It also integrates cloud infrastructure and workload platforms, including VMware NSX, Cisco ACI, Amazon Web Services (AWS), Microsoft Azure cloud, and the

510.8

610.3

873.7

Revenues by Segment (Millions)

Products and Licenses

Security Subscriptions

Software Updates and Maintenance

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Google Cloud Platform (GCP) 8. Check Point mobile security provides business security solutions to their mobile devices via SandBlast Mobile. Security management from Check Point consolidates all services to a scalable server for all sizes of business.

Retrieved from Check Point Technologies8 Check Point will derive much revenue from its Infinity Architecture. We predict Infinity Architecture will be a catalyst in switching over to subscriptions and have accordingly, forecasted a 15.00% growth in security subscriptions in 2022 and 2023.

New Products In 2019 Check Point introduced Maestro, “Maestro provides any size business the power, flexibility, scalability, and resilience of cloud-level security platforms on-premises” 8. They also introduced a new suite of network security products for large enterprises and data centers powered by the 16000 and 26000 security gateways, as well as, the 1550 and 1590 gateways protecting small and medium-sized businesses8. Additionally, Check Point Acquired Cymplify to integrate their technology into their Infinity Architecture to reduce customer exposure IoT (Internet of Things) cyber risk8. Check Point developed more threat prevention capabilities with its Anti-Ransomware

agent. Lastly, they updated their Security management software to version R80.30 that streamlines security operations8. Much of their success revolves around developing new products. We forecasted a 3% increase in research and development from 11% of revenues in 2019 to 14% of revenues in 2020. As more firms enter into the growing cybersecurity market and security solutions improve, Check Point will need to continue to increase its research and development. Research and Development will continue to increase until finally stabilizing at 17.00% of revenues in the continuing value year. Market Strategy and Customer Support Check Point uses global media campaigns, thought-leadership programs, digital marketing, social media, as well as press and analyst relations to market their products8. Check Point has product launches that introduce new products to consumers and relies on third parties to sell many of its products. They do this through a global network of thousands of partners, which spans two-tier distributors, value-added resellers, global systems integrators, telecommunications companies, and managed service providers8. They publish research on their website, attracting a variety of businesses and individuals. The company also hires consultants and systems engineers to work with their partners and customers for application support. Check Point partners with major hardware and software suppliers to serve diverse customer needs. In total, Check Point has 2,434 employees and subcontractors working on sales and marketing8. The services customer support provides include technical support plans, professional services in implementing and updating Check Point products, and certification and educational training8. They offer 24/7 support to customers and have over 800 individuals working in this segment while having customer support centers all around the world8. Check Point offers these services directly but also has channel partners assist with installation, training, and maintenance8. As Checkpoint switches consumers over to subscriptions, it will initially increase the need for customer support. We believe Check Point will need to hire more personnel as customers get acquainted with

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the subscription model. Therefore, we projected an increase of selling and marketing expenses of 27.50% of revenues for 2020 and 2021, eventually settling to 20.00% in 2025 as customers get more familiar with the service. Distribution Check Point is becoming very reliant on a small number of distributors; in 2019, 55% of revenues came from the ten largest distributors8. The success of Check Point is very dependent on a small number of distributors, and Check Point must maintain meaningful relationships. Various laws and regulations from governments make it harder for Check Point to distribute its products to certain countries. Taking these into account, Check Point implemented a global partner program,” Check PointS,” that rewards providers for activities that strengthen relationships and increase sales5. It is unique in the sense the program rewards relationship building, which bolsters sales in the long run—it incentives channel partners with product discounts and guaranteed margins5. Although there will be future problems distributing products, the initiative will increase sales. We forecast total revenues growing from $1,994.8 million in 2019 to $2,550.36 in 2025, partly due to Check Point’s strategy. However, this will increase selling and marketing expenses decreasing margins as we forecast it growing from $552.7 million in 2019 to $565.21 million in 2020.

Suppliers and Raw Materials As Check Point turns over most customers to subscriptions, they will require less hardware and have more capital to invest in research and development and sales and development. They also rely heavily on third-party provider technology to incorporate into their products8. Many components, subassemblies, and modules necessary for the manufacture or integration of their hardware products are obtained from a limited group of suppliers8. This puts Check Point at an increased risk factor due to quarantine from COVID-19. If a supplier cannot fulfill obligations to Check Point, they will not be able to deliver key products, and innovation will suffer. We believe that although there is

an increased risk, Check Point will continue to deliver security solutions, and their operations will be in full force. Likewise, we have forecasted no disruptions to supply and assumed no additional supply costs would burden them. Competitive Environment Check Point has recently lost market share in the cybersecurity industry. This is from the competitive environment with the constant influx of new companies into the industry and giant conglomerates having more resources to develop cybersecurity solutions. Total revenues in the industry have gone up consistently, so Check Point has not seen a downturn yet due to a loss of market share, and we believe they will not see one anytime soon26. Check Point may not be the leader it once was, but it is one of the strongest financially in the cybersecurity industry. It can beat large conglomerates like Microsoft because of its specialized workforce and equipment. It is also able to beat smaller start-up cybersecurity firms with its massive cash reserves and strong financial standing. We forecast this loss of market share is only a temporary set back, and Check Point will regain its market share with its Infinity subscription service. We project that the Infinity platform alone will drive revenues to our forecasted 10.71% average over the forecast horizon. Check Point may be losing on paper in the short term, but we believe they regain the market share much quicker than they lost it.


0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

0 5 10 15 20 25 30

Cyber Sercuirty Market Share

Check Point Palo Alto Networks Fortinet

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Valuation Analysis Valuation Method Our analysis consisted of four different valuation methods: the discounted cash flow, economic profit, dividend discount model, and relative valuation using comparable companies in the cybersecurity industry. We predicted a target stock price range of $155-$165.

Discounted Cash Flow - Economic Profit We analyzed Check Point's operating segments using the discounted cash flow and economic profit analysis to evaluate Check Point's intrinsic value. We believe that the discounted cash flow model best represents Check Point's value because of its overall consideration to Check Point's operating segments. Our discounted cash flow and economic profit analysis forecasted a target price of $159. We forecasted the cash flow and economic profit model for five years then calculated the continuing value to find Check Point's value in perpetuity. We used a constant growth rate of 1.00%. We believe this growth rate best estimates Check Point's growth in perpetuity. We discounted both the continuing value and free cash flows by our forecasted weighted average cost of capital of 5.52%. After finding the present value of free cash flows, we then calculated the value of operating assets. We then subtracted Check Point's non-operating assets to calculate the value of equity. Then we divided the value of equity by outstanding shares to get an intrinsic value per share for Check Point. The valuation at $159 is comparatively high to Check Point’s current valuation at $106.12 which is partially due to the Coronavirus panic in the market which is still at most what we believe to be a short term market phenomena and we forecast will not impact the market for the length of our model. The other reason is due to many analysts not looking at subscription revenue in the correct manner favoring very short-term slight growth over long term substantial growth. We believe that subscription revenue will lead to better outcomes for the company due to its lower costs, and the customer retention rate being much higher due to its nature as a subscription. We are also buying Check Point at what we believe to be a highly discounted rate due to the Coronavirus panic and overall short-term market uncertainty at this time.

Relative Valuation We analyzed Check Point's relative valuation using a comparable company's analysis to calculate an implied, relative valuation. Our relative valuation calculated an implied, relative value of $168. We evaluated four companies, Juniper Networks (JNPR), Palo Alto Networks Inc (JNPR), and Fortinet (FTNT), which are all direct competitors, and Cisco (CSCO) a large-cap network security competitor. We calculated the implied price by comparing the earnings per share for 2020 through 2021, the price to earnings ratio for 2020 through 2021, the estimated five-year earnings per share growth, and the PEG ratios for 2020 and 202128. Check Point's data was then inserted from the different areas of our model. We believe the relative valuation is not as accurate as the discounted cash flow and economic profit model because Check Point's earnings per share for 2020 and 2021 at $5.93 and $6.35 are far above the averages of the comparables and the highest in the group. The PEG ratio is not as useful for our model since it takes into account five-year estimates from analysts, which we believe have underestimated the value of the growing subscription business in many of these comparable companies. Dividend Discount Model The dividend discount model calculated an implied price today of $163. This model does fit in line with our discounted cash flow and economic profit model that we believe is the best estimate for Check Point's current valuation. However, since Check Point does not pay a dividend, this calculation is based on the future stock price. This is calculated by multiplying the price to earnings multiple of the continuing value to the earnings per share of the continuing value to find a future stock price. This is then discounted back to today, giving an implied price of $163. Though this forecast may be close to our target price, we put less weight on it due to Check Point not paying a dividend and the forecast using an implied dividend.

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Revenue Decomposition We decomposed Check Point's revenue into its three major revenue streams, products and licenses, security subscriptions, and software updates, maintenance, and services. Products and licenses experienced negative year over year growth while security subscriptions and software updates, maintenance, and services experienced positive growth. The unweighted year over year growth started at 3.05% for 2020 and ended at 1.95% for our continuing value. Products and Licenses Check Point's emphasis on security subscriptions has brought the revenue from products and licenses down, and it will continue on this trend. The industry has become much more adept at subscriptions as it offers the best service when it becomes available instead of having potential outdated software that does not make sense in the network security business. We project Check Point's revenue in this category will decline, starting at 5.00% in 2020 and falling to 7.00% in perpetuity. Security Subscriptions Security subscriptions have, by far, been the highest growth segment in the industry and Check Point's historical data. Security subscriptions grew by almost 13.00% in 2018 and 2019, so we project security subscriptions to continue to grow by 7.00% and 12.00% respectively in 2020 and 2021 due to Coronavirus stunting some growth. We project it to then grow by 15.00% until 2023 when we believe the market will be shifted over from products and licenses, and revenue will only grow at 4.25% in perpetuity. This market segment will continue to grow and grow at a high rate in the near future due to its lower costs, customer retention, and customer benefit. We have made our model surrounding this core assumption of security subscription growth because we believe that subscriptions are the future for not only Check Point and the network security industry but for the technology sector as a whole.

Software Updates and Maintenance This segment is highly connected to the other two. Though some may think this segment would decline due to our projected decline in products and licenses, we believe this revenue category will rise. We believe it will grow at only 2.00% for 2020 due to economic downturns from COVID-19 and continue growing at 3.00% from 2021 until the continuing value year, where it will be 2.00%. We believe this segment will grow for two reasons. First, we see Check Point's ability to sell extras on the subscriptions that they sell. Second, even with these subscriptions, many clients will still need on-site help, including technical support and hardware support to end-user customers. We believe that this segment will grow with security subscriptions because of the potential need for hardware add-ons and other support not included in any subscription. Continuing Value (CV) Growth We project that Check Point's continuing value revenue growth will be 1.95%. This estimate coincides with our Gross Domestic Product projections. We believe that Check Point will be in a high growth period until 2025 when we predict this continuing value will take effect. By 2025, we expect most of Check Point's customers to be transferred over to the security subscription services. This will make Check Point's revenue growth mostly reliant on getting new customers, which grows at a much lower rate than the growth of transferring current customers over to subscriptions. With the continuing decline of products and licenses and the slowing growth of software updates, maintenance and services, Check Point will become mostly reliant on these subscription services and new research and development for future growth. We believe Check Point after 2025 will look to expand its research and development platform and expenses to gain more market share to grow revenue in the continuing value period. Cost of Security Subscriptions Security subscriptions is the highest growth segment of revenues going forward due to Check Point's emphasis on converting customers to a subscription-based platform. The costs of this category will also rise due to costs from other segments that will be allocated to this

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one as more customers are added on a subscription basis. It is relevant that some revenue for the subscription will be billed on an annual basis, whereas costs will be paid more frequently. We project the cost of security subscriptions will maintain its current rate of 6.00% of security subscriptions revenue until 2020, then grow to 8.50% in the continuing value period. Research and Development Expense Research and development is, in our opinion, the most significant expense to a network security company. In this current environment, where network security companies are in constant competition, it remains imperative that Check Point continues to expand research and development to compete. We project Check Point will spend around 14.00% of total revenue on research and development and stabilize at 17.00% in the continuing value period. We believe that once Check Point moves most of its customers to subscriptions, it must continue to grow its research and development to maintain this customer base.

Selling and Marketing Expenses Check Point will have an opportunity to decrease its selling and marketing expenses due to a semi-constant consumer base. With Check Point moving to subscriptions, they will not need to spend as much on marketing as competitors. Customers will now be billed annually, leading to more stable revenue than a product or license. However, Check Point's selling and marketing expenses will only be lower if they can keep innovating, meaning they will have higher research and development costs, as new software is key to customer retention. We project selling and marketing expenses to be 27.50% of total revenue in 2020, declining to 20.00% of total revenue in the continuing value period. We believe that Check Point will cut its selling and marketing expenses because they will no longer need to spend as much to retain customers. Tax Rate Check Point is a foreign company headquartered in Tel Aviv, Israel; thus, it uses the Israeli marginal tax rate. Check Point's tax rate has oscillated over recent years,

from 20% to 13% to 14%8. The Israeli tax system is different in many ways to the United States tax code mainly due to differing incentive schedules and marginal rates. This makes it very difficult to calculate the tax rate for future years accurately. We assumed the 2019 tax rate of 14% throughout this model8. This model then could potentially be very susceptible to any significant changes in the Israeli tax code and should be considered a potential risk. Shares Outstanding Check Point has been initiating a high level of share repurchases in recent years. We believe that Check Point will stay on that path and continue with its share repurchase plan. We forecast Check Point will repurchase around $1 Billion to $1.1 Billion each period throughout our model. Check Point's ESPP has little to no impact on shares outstanding because it is a fraction of shares outstanding compared to the total stock repurchases which are nearing the net income of the company. With the company spending so much on share repurchases, this plays a significant role because it increases earnings per share and decreases cash due to some years Check Point spending more than its net income. Normal Cash With the Cyber Security industry being very heavy in subscriptions and deferred revenues, we projected 65.00% of revenue for the normal cash level. This is in the normal range for most technology companies and also helps to factor in the deferred revenues that Check Point currently receives only once a year. With its new subscription model and Infinity Architecture, Check Point only receives an annual payment from some clients making the cash line on their balance sheet not always reflective of their true financial situation. Weighted Average Cost of Capital Check Point has a lower weighted average cost of capital (WACC) than the comparable companies at 5.52%. Although Check Point finances operations entirely with equity, they have a significantly lower beta than competitors resulting in a lower cost of equity and hence a lower WACC. Less volatility implies less risk; thus,

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the cost of raising funds is lower. This WACC rate is critical to our model as it takes a major role in the discounted cash flow and economic profit model discounting the cash flows to today’s value. Cost of Equity The majority of Check Point’s WACC is the cost of equity due to the company's lack of corporate debt. We used the Capital Asset Pricing Model or CAPM to calculate the cost of equity. We used the 10-year treasury yield of 0.654% for the risk-free rate, though this is highly deflated due to the current Coronavirus Pandemic28. We then got the raw beta, which was 0.79, and used Damodaran's 6.16% for the equity risk premium. The equity risk premium is also subject to change because of the Coronavirus pandemic. Calculating the CAPM using these numbers, we got a cost of equity of 5.52%. We do, however, want to address that this number is due to its Coronavirus correlation and is a risk to the model. Cost of Debt Check Point has no publicly traded debt. To estimate their cost of debt, we used Juniper's before-tax cost of debt as we believe it is closest to what Check Point's potential debt structure would be. They had a pre-tax cost of debt of 3.32%14 and using Check Point's marginal tax rate of 14.00%; we found the after-tax cost of debt to be 2.86%.

Sensitivity Analysis

WACC and CV Growth of NOPLAT We compared the weighted average cost of capital (WACC) and the CV Growth of NOPLAT because the discount rate affects every cash flow and the continuing value. We felt it was crucial to see how changes in both the discount rate and the continuing value rate affect the intrinsic value of the stock today. We forecasted the WACC to be 5.52% and forecasted the CV Growth of NOPLAT to be 1.00%. Through sensitivity testing, we found that changes in WACC of just 0.20% changed the stock price by about 3.00%. The CV Growth of NOPLAT is similarly sensitive, with a 0.10% change causing around a 2.00% change in stock price.

Pre-Tax Cost of Debt and Risk-Free Rate The risk-free rate and the pre-tax cost of debt both have an impact on WACC. We used a 10-year Treasury rate of 0.654% for the risk-free rate28. The risk-free rate has fluctuated recently, so we wanted to test how it would affect the stock price. Likewise, debt is becoming more expensive as we enter into a recession. We found that changing the pre-tax cost of debt barely affected stock price as Check Point has very little debt. However, we found that increasing the risk-free rate resulted in a lower valuation due to the nature of the capital asset pricing model. This raises the cost of equity and raising the cost of equity increases the WACC. When WACC is increased the cash flows in the future are worth less, decreasing the value of the stock today.

Normal Cash and Marginal Tax Rate We tested the normal cash percentage against the marginal tax rate because both variables impact the discounted cash flows and economic profit models. We assumed that normal cash was 65.00% of revenues due to the high amount of deferred of revenues in the industry and a marginal tax rate of 14.00%. Increases in normal cash increase invested capital, which drives down ROIC and vice versa. Check Point is headquartered in Israel and, as a result, sees its tax rate change often and unpredictably, which impacts free cash flow. So we felt it was important to show how these affect the stock price. We found increasing normal cash percentage decreased valuation, though fairly insignificantly because it drives down ROIC. As the tax

159.33$ 4.92% 5.12% 5.32% 5.52% 5.72% 5.92% 6.12%0.70% 171.22 164.37 158.12 152.49 147.11 142.24 137.73

Cv Growth 0.80% 174.16 167.02 160.51 154.67 149.09 144.05 139.40 Noplat 0.90% 177.24 169.79 163.02 156.95 151.16 145.94 141.12

1.00% 180.49 172.70 165.64 159.33 153.31 147.90 142.92 1.10% 183.90 175.75 168.38 161.81 155.56 149.95 144.79 1.20% 187.49 178.96 171.26 164.41 157.91 152.08 146.73 1.30% 191.29 182.34 174.28 167.13 160.36 154.30 148.75

WACC

159.33$ 0.10% 0.25% 0.40% 0.65% 0.80% 0.95% 1.10%1.20% 178.50 172.80 167.50 159.34 155.05 150.92 147.03

Pre Tax 1.90% 178.49 172.79 167.50 159.33 155.05 150.91 147.03 Cost of Debt 2.60% 178.48 172.78 167.49 159.33 155.04 150.91 147.03

3.32% 178.47 172.78 167.48 159.33 155.04 150.91 147.03 3.80% 178.46 172.77 167.48 159.32 155.04 150.91 147.03 4.50% 178.45 172.76 167.47 159.32 155.04 150.91 147.03 5.20% 178.45 172.76 167.47 159.32 155.03 150.90 147.03

Risk free Rate

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rate decreased, free cash flow increased, and the valuation changed considerably.

Beta and Equity Risk Premium Beta and equity risk premium are two major variables in the capital asset pricing model. We used a five-year historical average beta of 0.79, and a geometric average for the equity risk premium of 6.16%, both pulled from Damodaran.com33. Decreases in both decrease the cost of equity and, ultimately, the discount rate. We found that minimal changes in either had dramatic effects on value. This is due to the discount rate affecting every cash flow and terminal value. Therefore, as beta increased, stock price decreased. Likewise, as the equity risk premium shrank, value increased.

CV Growth of Security Subscriptions and Products and Licenses Revenues These factors have a sizable impact on revenue for Check Point. We forecasted a continuing growth of 4.25% for security subscriptions and a negative 7.00% continuing growth for product and licenses. We felt it is important to compare how changes in either affect value. We found that as security subscription revenue grew, it resulted in higher valuation and as revenue from products and licenses shrank a lower valuation. These variables were key assumptions in the model, and we tested them to see how changes in either might have swayed our valuation.

159.33$ 50.00% 55.00% 60.00% 65.00% 70.00% 75.00% 80.00%5.00% 169.24 168.95 168.66 168.38 168.09 167.81 167.528.00% 166.22 165.93 165.65 165.36 165.07 164.79 164.50

Marginal 11.00% 163.20 162.92 162.63 162.34 162.06 161.77 161.48Tax Rate 14.00% 160.18 159.90 159.61 159.33 159.04 158.75 158.47

17.00% 157.17 156.88 156.59 156.31 156.02 155.73 155.4520.00% 154.15 153.86 153.57 153.29 153.00 152.72 152.4323.00% 151.13 150.84 150.56 150.27 149.98 149.70 149.41

Normal Cash Percentage

159.33$ 0.49 0.59 0.69 0.79 0.89 0.99 1.09 4.66% 342.35 280.22 238.27 208.05 185.25 167.45 153.16 5.16% 306.38 251.98 215.05 188.36 168.17 152.37 139.67

ERP 5.66% 277.66 229.31 196.35 172.45 154.33 140.14 128.71 6.16% 254.21 210.71 180.95 159.33 142.91 130.02 119.65 6.66% 234.71 195.18 168.06 148.32 133.31 121.52 112.02 7.16% 218.23 182.02 157.12 138.96 125.14 114.28 105.52 7.66% 204.12 170.72 147.71 130.91 118.11 108.04 99.92

Beta

159.33$ 1.25% 2.25% 3.25% 4.25% 5.25% 6.25% 7.25% -16.00% 154.87 155.61 156.36 157.10 157.85 158.59 159.33 Product and -13.00% 155.61 156.35 157.10 157.84 158.59 159.33 160.07 Licenses -10.00% 156.35 157.10 157.84 158.58 159.33 160.07 160.82 Revenue -7.00% 157.09 157.84 158.58 159.33 160.07 160.81 161.56

-4.00% 157.83 158.58 159.32 160.07 160.81 161.55 162.30 -1.00% 158.58 159.32 160.06 160.81 161.55 162.30 163.04 2.00% 159.32 160.06 160.81 161.55 162.29 163.04 163.78

Cv Growth Security Subsriptions Reveue

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Disclaimers Our forecasts were made during the Coronavirus pandemic. This event has affected markets like never before. There is no way to be certain whether this virus is a short term or long-term market phenomenon, and one can only assume. This virus could continue to spread and have unpredictable consequences on the market. Therefore, one must take into consideration the most up to date information on the economy, the market, the industry, and Check Point Technologies before making any investment. It is our opinion that the forecast accurately reflects our assumptions of Check Point Technologies as of 4/18/2020. This report was created by students enrolled in the Applied Equity Valuation (Fin:4250) 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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10Columbus, Louis. “2020 Roundup Of Cybersecurity Forecasts And Market Estimates.” Forbes, Forbes Magazine, 6 Apr. 2020, www.forbes.com/sites/louiscolumbus/2020/04/05/2020-roundup-of-cybersecurity-forecasts-and-market-estimates/#32572670381d.

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Check Point Software Technologies Ltd.Revenue Decomposition

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

Product & Licenses 559.026 525.557 510.800 485.260 460.997 437.947 416.050 395.247 367.580YOY Growth % -2.43% -5.99% -2.81% -5.00% -5.00% -5.00% -5.00% -5.00% -7.00%

Security Subscriptions 480.352 542.323 610.300 653.021 731.384 841.091 967.255 1073.653 1119.283YOY Growth % 23.20% 12.90% 12.53% 7.00% 12.00% 15.00% 15.00% 11.00% 4.25%

Software Updates, Maintenance, and Services 815.28 848.595 873.700 917.385 944.907 973.254 1002.451 1032.525 1063.501YOY Growth % 4.73% 4.09% 2.96% 5.00% 3.00% 3.00% 3.00% 3.00% 3.00%

Total Revenues 1854.913 1916.585 1994.927 2055.736 2137.387 2252.422 2385.886 2501.515 2550.366YOY Growth % 6.51% 3.32% 4.09% 3.05% 3.97% 5.38% 5.93% 4.85% 1.95%

Check Point Software Technologies Ltd.Income Statement (in millions)

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

Product & Licenses 559.03 525.56 510.80 485.26 461.00 437.95 416.05 395.25 367.58Security Subscriptions 480.35 542.32 610.30 653.02 731.38 841.09 967.25 1073.65 1119.28Software Updates Maintenance and Services 815.28 848.60 873.70 917.39 944.91 973.25 1002.45 1032.52 1063.50

Total Revenues 1854.66 1916.48 1994.80 2055.67 2137.29 2252.29 2385.76 2501.42 2550.36

Costs of RevenuesCost of Products & Licenses 104.21 91.95 90.70 84.89 80.64 76.61 72.78 69.14 55.14Cost of Security Subscriptions 18.87 17.73 24.60 39.18 43.88 75.70 87.05 96.63 95.14Cost of Software Updates & Maintenance 87.70 88.89 94.50 92.44 95.21 98.07 101.01 104.04 107.16Amortization of Technology 2.18 2.81 5.60 2.98 3.10 3.22 3.35 3.49 3.63Depreciation of Property and Equipment 12.88 16.40 24.00 16.89 19.43 22.00 24.66 26.62 28.51

Total Cost of Revenues -212.96 -201.38 -215.40 -219.49 -222.84 -253.60 -264.20 -273.30 -261.07

Operating ExpensesResearch & Development, Net 192.39 211.52 239.20 272.69 310.86 354.39 404.00 468.64 548.31Selling & Marketing Expense 433.43 500.85 552.70 565.31 587.75 585.60 572.58 550.31 510.07General & Administrative Expense 91.97 88.95 105.70 102.78 106.86 112.61 119.29 125.07 127.52

Total Operating Expenses -717.78 -801.32 -897.60 -940.78 -1005.48 -1052.60 -1095.87 -1144.02 -1185.90

Operating Income (Loss) 923.92 913.77 881.80 895.40 908.96 946.09 1025.69 1084.10 1103.40

Other Income (Expenses)Interest Income 74.90 88.48 93.30 73.71 74.45 75.19 76.13 77.08 78.04

Amortization of Debt Expense (Discount) 20.01 13.56 2.00 2.04 2.10 2.25 2.32 2.48 2.53Realized Investment Gains 0.18 1.80 -0.50 - - - - - -Foreign Exchange Gain (Loss) 5.56 5.72 8.90 - - - - - -Other Interest Expense (Not Cost of Revenues) 2.13 2.33 2.30 2.35 2.39 2.44 2.49 2.54 2.59

Total other expenses 27.87 23.41 12.70 4.39 4.49 4.69 4.81 5.02 5.12Financial Income (Expenses), Net 47.03 65.07 80.60 69.33 69.95 70.50 71.33 72.06 72.93

Income (Loss) Before Taxes on Income 970.95 978.84 962.40 964.72 978.92 1016.60 1097.01 1156.17 1176.32

Taxes (Benefit) on Income 168.02 157.54 136.70 135.06 137.05 142.32 153.58 161.86 164.69

Net Income (Loss) 802.92 821.31 825.70 829.66 841.87 874.27 943.43 994.30 1011.64Year End Shares Outstanding 162.72 156.63 150.60 139.81 132.65 125.04 116.94 110.20 103.18Net Earnings (Loss) Per Share - Basic 4.93 5.24 5.48 5.93 6.35 6.99 8.07 9.02 9.80Dividends Per Share - Basic 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Check Point Software Technologies Ltd.Balance Sheet (in millions)


AssetsCurrent Assets

Cash & Cash Equivalents 245.01 303.69 279.20 260.31 276.56 267.46 156.58 175.34 139.87Short-Term Bank Deposits 0.45 5.45 0.00 0.00 0.00 0.00 0.00 0.00 0.00Marketable Securities 1165.27 1442.64 1300.10 1311.80 1324.92 1338.17 1354.90 1371.83 1388.98Trade Receivables, Net 472.22 495.39 495.80 539.20 560.61 590.78 625.78 656.12 668.96Prepaid Expenses & Other Current Assets 81.48 74.74 59.10 74.00 76.94 81.08 85.89 90.05 91.81

Total Current assets 1964.43 2321.91 2134.20 2185.31 2239.03 2277.49 2223.15 2293.35 2289.62`

Marketable Securities 2437.32 2287.35 2368.80 2404.33 2440.40 2477.00 2514.16 2551.87 2590.15Property & Equipment, Cost 154.00 147.43 165.20 184.93 212.72 240.87 269.98 291.49 312.15

Less: Accumulated Depreciation 76.23 68.92 77.50 94.39 113.82 135.82 160.48 187.11 215.62Property & Equipment, Net 77.77 78.51 87.70 90.54 98.90 105.05 109.50 104.38 96.53Deferred Tax Asset, Net 119.43 84.69 55.30 54.02 54.82 56.93 61.43 64.75 65.87Other Intangible Assets, Net 18.40 40.97 42.80 43.23 43.66 44.10 44.54 45.87 47.25Goodwill 812.01 950.57 981.90 981.90 981.90 981.90 981.90 981.90 981.90Other Assets 33.58 64.22 94.20 94.20 94.20 94.20 94.20 94.20 94.20

Total Long-Term Assets 3498.50 3506.31 3630.70 3668.23 3713.87 3759.18 3805.72 3842.97 3875.90Total Assets 5462.92 5828.22 5764.90 5853.54 5952.90 6036.66 6028.87 6136.32 6165.52

Liabilities and Shareholder's EquityLiabilities

Trade Payables 12.22 20.76 15.90 16.70 17.53 18.41 19.33 20.29 21.31Employees & Payroll Accruals 139.85 156.96 190.90 186.80 194.22 195.22 193.45 188.84 178.27Deferred Revenues 878.29 980.18 1011.90 986.72 1025.90 1103.62 1169.02 1225.70 1275.18Accrued Expenses & Other Current Liabilities 176.57 173.97 178.00 217.40 226.03 227.20 225.13 219.77 207.47

Total Current Liabilities 1206.93 1331.87 1396.70 1407.61 1463.67 1544.45 1606.93 1654.60 1682.23

Deferred Revenues 308.29 357.78 374.80 349.46 363.34 427.94 477.15 500.28 561.08Income Tax Accrual 337.45 356.75 393.30 417.82 434.41 436.66 432.69 422.39 398.75Accrued Severance Pay, Other 10.14 9.43 31.30 11.76 12.23 12.29 12.18 11.89 11.22

Total Long-Term Liabilities 655.88 723.95 799.40 779.05 809.98 876.88 922.02 934.56 971.05

Total Liabilities 1862.80 2055.82 2196.10 2186.66 2273.65 2421.33 2528.95 2589.16 2653.28Shareholder's Equity

Common Equity 1305.90 1598.58 1771.10 1929.72 2088.34 2246.95 2405.57 2564.19 2722.81Treasury Shares at Cost 5893.18 6844.70 8092.70 8982.90 9971.02 11067.83 12285.29 13390.96 14596.15Accumulated Other Comprehensive Income (Loss) -15.63 -24.50 21.70 21.70 21.70 21.70 21.70 21.70 21.70Retained Earnings 8203.04 9043.01 9868.70000 10698.36 11540.23 12414.51 13357.94 14352.24 15363.88

Total Shareholders' Equity 3600.12 3772.39 3568.80 3666.88 3679.25 3615.33 3499.92 3547.17 3512.24Total Liabilities & Shareholders' Equity 5462.92 5828.22 5764.90 5853.54 5952.90 6036.66 6028.87 6136.32 6165.52

Check Point Software Technologies Ltd.Historical Cash Flow Statement (in millions)

Fiscal Years Ending Dec. 31 2012 2013 2014 2015 2016 2017 2018 2019Operating Activities

Net income 620.00 651.87 659.57 685.87 724.85 802.92 821.31 825.70Depreciation & amortization of property & equipment 7.86 8.55 9.18 10.36 10.88 12.88 16.40 16.70Amortization of premium & accretion of discount on marketable securities, net 33.78 22.39 33.02 29.61 23.39 20.01 13.56 2.00Net gain on sale of marketable securities previously impaired - -0.93 - - - - - -Realized loss (gain) on sale of marketable securities, net -1.44 -1.38 -0.29 -0.02 -2.99 0.18 1.80 -0.70Amortization of intangible assets 7.03 3.02 2.11 3.61 3.85 3.76 4.39 7.30Stock-based compensation 45.29 51.11 63.17 76.30 82.73 87.46 89.33 106.70Deferred income tax expense (benefit) -1.45 0.03 -12.29 -15.85 -32.59 64.63 16.26 9.50Excess tax benefit from stock-based compensation -11.13 -35.35 -11.67 -19.38 -17.38 - - -Accrued severance pay, net 0.06 0.16 -0.41 0.20 0.15 0.71 -0.17 -Trade receivables, net -16.34 -5.89 12.95 -43.38 -67.74 6.28 -21.83 -0.40Prepaid expenses & other current assets & other assets 4.59 -0.82 -8.61 -21.40 11.23 5.62 1.98 22.90Trade payables 5.45 1.29 1.88 5.18 2.18 -7.80 6.64 -4.80Employees & payroll accruals 0.96 22.40 2.70 13.84 19.35 -4.55 20.08 39.80Income tax accrual - - - - - -3.49 28.36 34.60Accrued expenses & other liabilities 117.37 11.98 -77.81 101.24 28.53 - - -3.70Deferred revenues 37.51 81.93 112.39 120.56 159.80 120.99 144.97 48.70

Net cash flow from operating activities 849.54 810.36 785.88 946.73 946.24 1109.61 1143.08 1104.30

Investing ActivitiesProceeds from maturity of marketable securities 991.58 1110.18 1233.87 1479.24 1525.93 1363.70 1464.38 2140.10Proceeds from sale of marketable securities 242.07 21.72 75.91 109.74 235.25 66.10 150.24 167.40Proceeds from short term bank deposits - 248.57 - 0.32 - 106.61 - 4.90Investment in marketable securities -1589.12 -1916.83 -1535.80 -1628.29 -1746.93 -1686.45 -1767.55 -2188.90Investment in short-term bank deposits - - -7.34 - -100.00 - -5.00 -Cash paid in conjunction with acquisitons, net of cash acquired - - - -96.54 - - -154.90 -37.60Proceeds from maturity of short term deposits -10.60 - - - - - - -Purchase of property & equipment -8.20 -9.56 -12.74 -17.35 -24.05 -28.78 -17.15 -25.90

Net cash flows from investing activities -374.26 -545.93 -246.10 -152.88 -109.80 -178.82 -329.98 60.00

Financing Activities Proceeds from issuance of treasury shares upon exercise of options - - - - - 127.52 353.50 95.30Proceeds from issuance of share under stock purchase plan & upon exercise of options 61.01 67.13 70.27 102.85 129.20 - - 0.00Purchase of treasury shares at cost -466.16 -534.20 -768.18 -985.74 -987.90 -995.32 -1103.87 -1278.00Payments related to shares withheld for taxes - - - - - -5.40 -4.62 -6.00Excess tax benefit from stock-based compensation 11.13 35.35 11.67 19.38 17.38 - - 0.00

Net cash flows from financing activities -394.03 -431.72 -686.24 -863.51 -841.32 -873.20 -754.99 -1188.70

Increase (decrease) in cash & cash equivalents 81.26 -167.30 -146.46 -69.66 -4.88 57.59 58.11 -24.40Cash & cash equivalents, beginning of year 493.55 574.80 408.43 261.97 192.31 187.43 245.01 303.60

Cash & cash equivalents, end of year 574.80 407.50 261.97 192.31 187.43 245.01 303.69 279.20

Check Point Software Technologies Ltd.Forecasted Cash Flow Statement (in millions)

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

Net income 829.66 841.87 874.27 943.43 994.30 1011.64Depreciation & Amortization of Property & Equipment 16.89 19.43 22.00 24.66 26.62 28.51Trade Receivables, Net -43.40 -21.41 -30.17 -35.01 -30.34 -12.84Prepaid Expenses & Other Current Assets -14.90 -2.94 -4.14 -4.80 -4.16 -1.76Deferred Tax Asset, Net 1.28 -0.79 -2.11 -4.50 -3.31 -1.13Trade Payables 0.80 0.83 0.88 0.92 0.97 1.01Employees & Payroll Accruals -4.10 7.42 1.00 -1.77 -4.61 -10.57Deferred Revenues -25.18 39.18 77.73 65.40 56.68 49.48Accrued Expenses & Other Current Liabilities 39.40 8.63 1.17 -2.06 -5.36 -12.30Deferred Revenues Long Term -25.34 13.88 64.60 49.22 23.13 60.80Income Tax Accrual 24.52 16.59 2.25 -3.97 -10.31 -23.64Accrued Severance Pay, Other -19.54 0.47 0.06 -0.11 -0.29 -0.67

Net Cash Flow From Operating Activities 780.08 923.15 1007.54 1031.40 1043.32 1088.55

Investing ActivitiesShort-Term Bank Deposits 0.00 0.00 0.00 0.00 0.00 0.00Marketable Securities -11.70 -13.12 -13.25 -16.73 -16.94 -17.15Marketable Securities Long Term -35.53 -36.06 -36.61 -37.16 -37.71 -38.28Capital Expenditures -19.73 -27.78 -28.15 -29.11 -21.51 -20.66Other Intangible Assets, Net -0.43 -0.43 -0.44 -0.44 -1.34 -1.38

Net Cash Flows From Investing Activities -67.40 -77.40 -78.45 -83.43 -77.50 -77.46

Financing ActivitiesProceeds From Issuance of Common Stock 158.62 158.62 158.62 158.62 158.62 158.62Repurchase of Treasury Stock -890.20 -988.12 -1096.81 -1217.46 -1105.68 -1205.19

Net Cash Flows From Financing Activities -731.58 -829.50 -938.19 -1058.84 -947.06 -1046.57

Increase (Decrease) in Cash & Cash Equivalents -18.89 16.25 -9.10 -110.88 18.76 -35.48Cash & Cash Equivalents, Beginning of Year 279.20 260.31 276.56 267.46 156.58 175.34

Cash & Cash Equivalents, End of Year 260.31 276.56 267.46 156.58 175.34 139.87

Check Point Software Technologies Ltd.Common Size Income Statement % Of Revenue

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

Product & Licenses 30.14% 27.42% 25.61% 23.61% 21.57% 19.44% 17.44% 15.80% 14.41%Security Subscriptions 25.90% 28.30% 30.59% 31.77% 34.22% 37.34% 40.54% 42.92% 43.89%Software Updates Maintenance and Services 43.96% 44.28% 43.80% 44.63% 44.21% 43.21% 42.02% 41.28% 41.70%

Total Revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Costs of RevenuesCost of Products & Licenses 5.62% 4.80% 4.55% 4.13% 3.77% 3.40% 3.05% 2.76% 2.16%Cost of Security Subscriptions 1.02% 0.92% 1.23% 1.91% 2.05% 3.36% 3.65% 3.86% 3.73%Cost of Software Updates & Maintenance 4.73% 4.64% 4.74% 4.50% 4.45% 4.35% 4.23% 4.16% 4.20%Amortization of Technology 0.12% 0.15% 0.28% 0.15% 0.15% 0.14% 0.14% 0.14% 0.14%

Total Cost of Revenues -11.48% -10.51% -10.80% -10.68% -10.43% -11.26% -11.07% -10.93% -10.24%

Operating ExpensesResearch & Development, Net 10.37% 11.04% 11.99% 13.27% 14.54% 15.73% 16.93% 18.73% 21.50%Selling & Marketing Expense 23.37% 26.13% 27.71% 27.50% 27.50% 26.00% 24.00% 22.00% 20.00%General & Administrative Expense 4.96% 4.64% 5.30% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%

Total Operating Expenses -38.70% -41.81% -45.00% -45.77% -47.04% -46.73% -45.93% -45.73% -46.50%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Operating Income (Loss) 49.82% 47.68% 44.20% 43.56% 42.53% 42.01% 42.99% 43.34% 43.26%

Other Income (Expenses)Interest Income 4.04% 4.62% 4.68% 3.59% 3.48% 3.34% 3.19% 3.08% 3.06%

Amortization of Debt Expense (Discount) 1.08% 0.71% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%Realized Investment Gains 0.01% 0.09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Foreign Exchange Gain (Loss) 0.30% 0.30% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other Interest Expense (Not Cost of Revenues) 0.11% 0.12% 0.12% 0.11% 0.11% 0.11% 0.10% 0.10% 0.10%

Total other expenses 1.50% 1.22% 0.64% 0.21% 0.21% 0.21% 0.20% 0.20% 0.20%Financial Income (Expenses), Net 2.54% 3.40% 4.04% 3.37% 3.27% 3.13% 2.99% 2.88% 2.86%

Income (Loss) Before Taxes on Income 52.35% 51.08% 48.25% 46.93% 45.80% 45.14% 45.98% 46.22% 46.12%

Taxes (Benefit) on Income 9.06% 8.22% 6.85% 6.57% 6.41% 6.32% 6.44% 6.47% 6.46%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Net Income (Loss) 43.29% 42.85% 41.39% 40.36% 39.39% 38.82% 39.54% 39.75% 39.67%Year End Shares Outstanding 8.77% 8.17% 7.55% 6.80% 6.21% 5.55% 4.90% 4.41% 4.05%

Check Point Software Technologies Ltd.Common Size Balance Sheet % of Assets and Liabilites

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2023E 2024E 2025EAssetsCurrent Assets

Cash & Cash Equivalents 4.48% 5.21% 4.84% 4.45% 4.65% 2.60% 2.86% 2.27%Short-Term Bank Deposits 0.01% 0.09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Marketable Securities 21.33% 24.75% 22.55% 22.41% 22.26% 22.47% 22.36% 22.53%Trade Receivables, Net 8.64% 8.50% 8.60% 9.21% 9.42% 10.38% 10.69% 10.85%Prepaid Expenses & Other Current Assets 1.49% 1.28% 1.03% 1.26% 1.29% 1.42% 1.47% 1.49%

Total Current assets 35.96% 39.84% 37.02% 37.33% 37.61% 36.88% 37.37% 37.14%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Marketable Securities 44.62% 39.25% 41.09% 41.07% 41.00% 41.70% 41.59% 42.01%Property & Equipment, Cost 2.82% 2.53% 2.87% 3.16% 3.57% 4.48% 4.75% 5.06%

Less: Accumulated Depreciation 1.40% 1.18% 1.34% 1.61% 1.91% 2.66% 3.05% 3.50%Property & Equipment, Net 1.42% 1.35% 1.52% 1.55% 1.66% 1.82% 1.70% 1.57%Deferred Tax Asset, Net 2.19% 1.45% 0.96% 0.92% 0.92% 1.02% 1.06% 1.07%Other Intangible Assets, Net 0.34% 0.70% 0.74% 0.74% 0.73% 0.74% 0.75% 0.77%Goodwill 14.86% 16.31% 17.03% 16.77% 16.49% 16.29% 16.00% 15.93%Other Assets 0.61% 1.10% 1.63% 1.61% 1.58% 1.56% 1.54% 1.53%

Total Long-Term Assets 64.04% 60.16% 62.98% 62.67% 62.39% 63.12% 62.63% 62.86%Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%


Trade Payables 0.22% 0.36% 0.28% 0.29% 0.29% 0.32% 0.33% 0.35%Employees & Payroll Accruals 2.56% 2.69% 3.31% 3.19% 3.26% 3.21% 3.08% 2.89%Deferred Revenues 16.08% 16.82% 17.55% 16.86% 17.23% 19.39% 19.97% 20.68%Accrued Expenses & Other Current Liabilities 3.23% 2.99% 3.09% 3.71% 3.80% 3.73% 3.58% 3.37%

Total Current Liabilities 22.09% 22.85% 24.23% 24.05% 24.59% 26.65% 26.96% 27.28%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Deferred Revenues 5.64% 6.14% 6.50% 5.97% 6.10% 7.91% 8.15% 9.10%Income Tax Accrual 6.18% 6.12% 6.82% 7.14% 7.30% 7.18% 6.88% 6.47%Accrued Severance Pay, Other 0.19% 0.16% 0.54% 0.20% 0.21% 0.20% 0.19% 0.18%

Total Long-Term Liabilities 12.01% 12.42% 13.87% 13.31% 13.61% 15.29% 15.23% 15.75%Total Liabilities 34.10% 35.27% 38.09% 37.36% 38.19% 41.95% 42.19% 43.03%Shareholder's Equity 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Common Equity 23.90% 27.43% 30.72% 32.97% 35.08% 39.90% 41.79% 44.16%Treasury Shares at Cost 107.88% 117.44% 140.38% 153.46% 167.50% 203.77% 218.22% 236.74%Accumulated Other Comprehensive Income (Loss) -0.29% -0.42% 0.38% 0.37% 0.36% 0.36% 0.35% 0.35%Retained Earnings 150.16% 155.16% 171.19% 182.77% 193.86% 221.57% 233.89% 249.19%

Total Shareholders' Equity 65.90% 64.73% 61.91% 62.64% 61.81% 58.05% 57.81% 56.97%Total Liabilities & Shareholders' Equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Check Point Software Technologies Ltd.Common Size Balance Sheet % of Revenue

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

Cash & Cash Equivalents 13.21% 15.85% 14.00% 12.66% 12.94% 11.87% 6.56% 7.01% 5.48%Short-Term Bank Deposits 0.02% 0.28% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Marketable Securities 62.83% 75.28% 65.17% 63.81% 61.99% 59.41% 56.79% 54.84% 54.46%Trade Receivables, Net 25.46% 25.85% 24.85% 26.23% 26.23% 26.23% 26.23% 26.23% 26.23%Prepaid Expenses & Other Current Assets 4.39% 3.90% 2.96% 3.60% 3.60% 3.60% 3.60% 3.60% 3.60%

Total Current Assets 105.92% 121.16% 106.99% 106.31% 104.76% 101.12% 93.18% 91.68% 89.78%

Marketable Securities 131.42% 119.35% 118.75% 116.96% 114.18% 109.98% 105.38% 102.02% 101.56%Property & Equipment, Cost 8.30% 7.69% 8.28% 9.00% 9.95% 10.69% 11.32% 11.65% 12.24%

Less: Accumulated Depreciation 4.11% 3.60% 3.89% 4.59% 5.33% 6.03% 6.73% 7.48% 8.45%Property & Equipment, Net 4.19% 4.10% 4.40% 4.40% 4.63% 4.66% 4.59% 4.17% 3.78%Severance Pay Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Deferred Tax Asset, Net 6.44% 4.42% 2.77% 2.63% 2.56% 2.53% 2.57% 2.59% 2.58%Other Intangible Assets, Net 0.99% 2.14% 2.15% 2.10% 2.04% 1.96% 1.87% 1.83% 1.85%Goodwill 43.78% 49.60% 49.22% 47.77% 45.94% 43.60% 41.16% 39.25% 38.50%Other Assets 1.81% 3.35% 4.72% 4.58% 4.41% 4.18% 3.95% 3.77% 3.69%

Total Long-Term Assets 188.63% 182.96% 182.01% 178.44% 173.77% 166.90% 159.52% 153.63% 151.97%Total Assets 294.55% 304.11% 289.00% 284.75% 278.53% 268.02% 252.70% 245.31% 241.75%


Trade Payables 0.66% 1.08% 0.80% 0.81% 0.82% 0.82% 0.81% 0.81% 0.84%Employees & Payroll Accruals 7.54% 8.19% 9.57% 9.09% 9.09% 8.67% 8.11% 7.55% 6.99%Deferred Revenues 47.36% 51.14% 50.73% 48.00% 48.00% 49.00% 49.00% 49.00% 50.00%Accrued Expenses & Other Current Liabilities 9.52% 9.08% 8.92% 10.58% 10.58% 10.09% 9.44% 8.79% 8.14%

Total Current Liabilities 65.08% 69.50% 70.02% 68.47% 68.48% 68.57% 67.36% 66.15% 65.96%

Deferred Revenues 16.62% 18.67% 18.79% 17.00% 17.00% 19.00% 20.00% 20.00% 22.00%Income Tax Accrual 18.19% 18.61% 19.72% 20.33% 20.33% 19.39% 18.14% 16.89% 15.64%Deferred Tax Liability, Net 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Accrued Severance Pay, Other 0.55% 0.49% 1.57% 0.57% 0.57% 0.55% 0.51% 0.48% 0.44%

Total Long-Term Liabilities 35.36% 37.78% 40.07% 37.90% 37.90% 38.93% 38.65% 37.36% 38.08%Total Liabilities 100.44% 107.27% 110.09% 106.37% 106.38% 107.51% 106.00% 103.51% 104.04%Shareholder's Equity

Common Equity 70.41% 83.41% 88.79% 93.87% 97.71% 99.76% 100.83% 102.51% 106.76%Treasury Shares at Cost 317.75% 357.15% 405.69% 436.98% 466.53% 491.40% 514.94% 535.33% 572.32%Accumulated Other Comprehensive Income (Loss) -0.84% -1.28% 1.09% 1.06% 1.02% 0.96% 0.91% 0.87% 0.85%Retained Earnings 442.29% 471.86% 494.72% 520.43% 539.95% 551.19% 559.90% 573.76% 602.42%

Total Shareholders' Equity 194.11% 196.84% 178.91% 178.38% 172.15% 160.52% 146.70% 141.81% 137.72%Total Liabilities & Shareholders' Equity 294.55% 304.11% 289.00% 284.75% 278.53% 268.02% 252.70% 245.31% 241.75%

Check Point Software Technologies Ltd.Weighted Average Cost of Capital (WACC) Estimation

Cost of Equity: ASSUMPTIONS:Risk-Free Rate 0.65% 10-year Treasury bondBeta 0.79 Average 5 year monthly betaEquity Risk Premium 6.16% 1928-2019 geometric average over 10-year TreasuryCost of Equity 5.52%

Cost of Debt:

Risk-Free Rate 0.65% 10 year treasuryImplied Default Premium 2.67% 1928-2019 Geometric Average of S&P 500 v. 10-year T-bondPre-Tax Cost of Debt 3.32% Used Juniper (Comp)Marginal Tax Rate 14%After-Tax Cost of Debt 2.86%

Market Value of Common Equity: MV Weights

Total Shares Outstanding 156.63Current Stock Price $106.12MV of Equity 16,621.79 99.83%

Market Value of Debt:

Short-Term Debt -Current Portion of LTD -Long-Term Debt -PV of Operating Leases 27.73 PV of operating leasesMV of Total Debt 27.73 0.17%

Market Value of the Firm 16,649.52 100.00%

Estimated WACC 5.52%

Check Point Software Technologies Ltd.Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models(in millions)Key Inputs: CV Growth of NOPLAT 1.00% CV Year ROIC 200.06% WACC 5.52% Cost of Equity 5.52%

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

DCF Model:Free Cash Flow (FCF) 635.21 741.55 814.54 832.03 868.03 1033.50

Continuing Value (CV) 21752.26PV of FCF 602.01 666.05 693.36 671.22 663.65 16630.82

Value of Operating Assets: 19927.10Non-Operating AdjustmentsAdd: Marketable securities 3716.13Less: PV of Operating Leases -18.03Less: ESOP 0.00Less: Accured severance pay -11.76Value of Equity 23613.45Shares Outstanding 150.60Intrinsic Value of Last FYE 156.80$ Implied Price as of Today 159.33$

EP Model:Economic Profit (EP) 735.13 736.54 762.53 831.07 880.33 960.04

Continuing Value (CV) 21258.77PV of EP 696.70 661.54 649.08 670.45 673.06 16253.52

Total PV of EP 19604.35Invested Capital (last FYE) 322.75Value of Operating Assets: 19927.10Non-Operating AdjustmentsAdd: Marketable securities 3716.13Less: PV of Operating Leases -18.03Less: ESOP 0.00Less: Accured severance pay -11.76Value of Equity 23613.45Shares Outstanding 150.60Intrinsic Value of Last FYE 156.80$ Implied Price as of Today 159.33$

Check Point Software Technologies Ltd.Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

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

EPS 5.93$ 6.35$ 6.99$ 8.07$ 9.02$ 9.80$

Key Assumptions

CV growth of EPS 1.00% CV Year ROE 28.80% Cost of Equity 5.52%

Future Cash Flows

P/E Multiple (CV Year) 21.35$ EPS (CV Year) 9.80$ Future Stock Price 209.36$ Dividends Per Share 0 0 0 0 0 0 Discounted Cash Flows 160.03$

1 2 3 4 5 6Intrinsic Value as of Last FYE 160.03$ Implied Price as of Today 162.62$

Check Point Software Technologies Ltd.Relative Valuation Models

EPS EPS Est. 5yr BV TangibleTicker Company Price 2020E 2021E P/E 20 P/E 21 EPS gr. PEG 20 PEG 21 Equity BV Equity

PANW Palo Alto Networks Inc $193.43 $4.49 $5.67 43.08 34.11 10.0 4.32 3.42 26.36 38.96JNPR Juniper Networks $22.57 $1.62 $1.84 13.93 12.27 -1.2 - - 13.24 19.74FTNT Fortinet $112.96 $2.65 $3.09 42.63 36.56 17.3 2.47 2.12 7.55 17.55CSCO Cisco $42.48 $3.08 $3.17 13.79 13.40 5.3 2.58 2.51 7.54 9.67

Average 28.36 24.08 7.04 3.12 2.68

CHKP Check Point Software Technologies Ltd.$106.12 $5.93 $6.35 17.9 16.7 8.7 2.1 1.9 24.08 29.73

Implied Relative Value:

P/E (EPS20) $ 168.28

P/E (EPS21) 152.85$

PEG (EPS20) 160.57$

PEG (EPS21) 147.47$

P/B 178.44$

P/Tangible BV 125.87$

Check Point Software Technologies Ltd.Key Management Ratios

Fiscal Years Ending Dec. 31 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E

Liquidity Ratios:

Current Ratio: (Current Assets/Current Liabilities) 1.62 1.63 1.74 1.53 1.55 1.53 1.47 1.38 1.39 1.36Quick ratio: (Cash+Accounts Receivable)/Current Liabilities) 1.62 1.63 1.74 1.53 1.55 1.53 1.47 1.38 1.39 1.36Cash Ratio: (Cash+Cash Equiv)/Current Liabilities 1.18 1.17 1.32 1.13 1.12 1.09 1.04 0.94 0.94 0.91Operating cash flow turnover: (Net Cash Flow from Operating Activites/Current Liabilties) 0.81 0.92 0.86 0.71 0.57 0.60 0.60 0.60 0.60 0.62

Asset-Management Ratios:

Recievable Turnover: (Total Revenues/Trade Receivables, net) 3.64 3.93 3.87 4.02 3.81 3.81 3.81 3.81 3.81 3.81Total Asset Turnover: (Total Revenues/Total Assets) 0.33 0.34 0.33 0.35 0.35 0.36 0.37 0.40 0.41 0.41Fixed Asset Turnover: (Total Revenues/Property and Equipment Net) 28.15 23.85 24.41 22.75 22.70 21.61 21.44 21.79 23.96 26.42

Financial Leverage Ratios:

Debt ratio: (Total Liabilities/Total Assets) 0.33 0.34 0.35 0.38 0.37 0.38 0.40 0.42 0.42 0.43Debt to Equity: (Total Liabilities/Total Stockholder's Equity) 0.49 0.52 0.54 0.62 0.60 0.62 0.67 0.72 0.73 0.76Equity Ratio: (Total Stockholders Equity/Total Assets) 0.67 0.66 0.65 0.62 0.63 0.62 0.60 0.58 0.58 0.57

Profitability Ratios:

ROA: (Net Income/Total Assets) 13.89% 14.70% 14.09% 14.32% 14.17% 14.14% 14.48% 15.65% 16.20% 16.41%ROE: (Net Income/Total Stockholder's Equity) 20.76% 22.30% 21.77% 23.14% 22.63% 22.88% 24.18% 26.96% 28.03% 28.80%Operating Margin: (Operating Income/Total Revenue) 48.94% 49.82% 47.68% 44.20% 43.56% 42.53% 42.01% 42.99% 43.34% 43.26%Profit Margin: (Net Income/Total Revenues) 41.63% 43.29% 42.85% 41.39% 40.36% 39.39% 38.82% 39.54% 39.75% 39.67%

Payout Policy Ratios:

Dividend Payout Ratio: (Dividends Paid/Net Income) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total Payout Ratio: ((Dividends Paid + Total Repurchases)/Net Income) 125.94% 116.70% 115.85% 151.14% 107.30% 117.37% 125.45% 129.05% 111.20% 119.13%

Check Point Software Technologies Ltd.Value Driver Estimation (in millions)


NOPLAT:Revenues 1854.66 1916.48 1994.80 2055.67 2137.29 2252.29 2385.76 2501.42 2550.36Cost of products & licenses -104.21 -91.95 -90.70 -84.89 -80.64 -76.61 -72.78 -69.14 -55.14Cost of security subscriptions -18.87 -17.73 -24.60 -39.18 -43.88 -75.70 -87.05 -96.63 -95.14Cost of software updates & maintenance -87.70 -88.89 -94.50 -92.44 -95.21 -98.07 -101.01 -104.04 -107.16Amortization of technology -2.18 -2.81 -5.60 -2.98 -3.10 -3.22 -3.35 -3.49 -3.63Research & development, net -192.39 -211.52 -239.20 -272.69 -310.86 -354.39 -404.00 -468.64 -548.31Selling & marketing expense -433.43 -500.85 -552.70 -565.31 -587.75 -585.60 -572.58 -550.31 -510.07General & administrative expense -91.97 -88.95 -105.70 -102.78 -106.86 -112.61 -119.29 -125.07 -127.52Depreciation and Amortization of PPE -12.88 -16.40 -24.00 -16.89 -19.43 -22.00 -24.66 -26.62 -28.51Interest on PV operating leases 0.60 0.79 0.51 0.58 0.66 0.75 0.84 0.91 0.97

EBITA 911.64 898.17 858.31 879.08 890.20 924.84 1001.87 1058.39 1075.86Less Adjusted taxesTotal Income Provisions 168.02 157.54 136.70 135.06 137.05 142.32 153.58 161.86 164.69Tax Rate 0.13 0.14 0.14 0.14 0.14 0.14 0.14 0.14 0.14

Tax On operating Lease Interest 0.08 0.11 0.07 0.08 0.09 0.11 0.12 0.13 0.14Tax Shield on Interest Expense 0.28 0.33 0.32 0.33 0.34 0.34 0.35 0.36 0.36Tax on interest or investment income -9.74 -12.39 -13.06 -10.32 -10.42 -10.53 -10.66 -10.79 -10.93

Tax shield on amortized debt expense 2.60 1.90 0.28 0.29 0.29 0.31 0.32 0.35 0.35Tax on any non-operating income 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Tax shield on investment gains 0.02 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00Tax shield on for exchange gain (lost) -0.72 -0.80 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total Adjusted taxes 160.46 146.82 124.24 125.36 127.26 132.45 143.60 151.77 154.48Change in Deferred Taxes 34.74 29.39 1.28 -0.79 -2.11 -4.50 -3.31 -1.13 65.87

NOPLAT: 785.91 780.73 735.35 752.93 760.83 787.89 854.96 905.48 987.26

Invested Capital (IC):Included:

Normal Cash 1205.53 1245.71 1296.62 1336.18 1389.24 1463.99 1550.74 1625.93 1657.74Accounts Receivable 472.22 495.39 495.80 539.20 560.61 590.78 625.78 656.12 668.96Prepaid Expenses 81.48 74.74 59.10 74.00 76.94 81.08 85.89 90.05 91.81

Operating CA 1759.23 1815.84 1851.52 1949.39 2026.79 2135.85 2262.41 2372.10 2418.51Accounts payable 12.22 20.76 15.90 16.70 17.53 18.41 19.33 20.29 21.31Accrued Expenses 316.42 330.93 368.90 404.20 420.24 422.42 418.58 408.61 385.74Deferred Revenue 878.29 980.18 1011.90 986.72 1025.90 1103.62 1169.02 1225.70 1275.18

Non Interest-Bearing Current Liabilities 1206.93 1331.87 1396.70 1407.61 1463.67 1544.45 1606.93 1654.60 1682.23Net Operating Working Capital 552.30 483.97 454.82 541.78 563.12 591.40 655.48 717.50 736.28

Gross PPE 154.00 147.43 165.20 184.93 212.72 240.87 269.98 291.49 312.15Accumulated Depreciation 76.23 68.92 77.50 94.39 113.82 135.82 160.48 187.11 215.62

Net Property, Plant Equipment (PPE) 77.77 78.51 87.70 90.54 98.90 105.05 109.50 104.38 96.53Net Intangible Assets 18.40 40.97 42.80 43.23 43.66 44.10 44.54 45.87 47.25Capitalized PV of operating leases 20.99 27.73 18.03 20.18 23.22 26.29 29.46 31.81 34.07Other Operating Assets 33.58 64.22 94.20 94.20 94.20 94.20 94.20 94.20 94.20

Net Other Operating Assets 72.96 132.92 155.03 157.61 161.08 164.58 168.20 171.89 175.52Deferred Revenue (long Term) 308.29 357.78 374.80 349.46 363.34 427.94 477.15 500.28 561.08Invested Capital (IC): 394.75 337.62 322.75 440.47 459.75 433.10 456.03 493.49 447.24

Free Cash Flow (FCF):NOPLAT 785.91 780.73 735.35 752.93 760.83 787.89 854.96 905.48 987.26Change in Invested Capital 25.39 -57.13 -14.87 117.72 19.28 -26.65 22.93 37.46 -46.24

FCF 760.52 837.86 750.22 635.21 741.55 814.54 832.03 868.03 1033.50

Return on Invested Capital (ROIC):NOPLAT 785.91 780.73 735.35 752.93 760.83 787.89 854.96 905.48 987.26Beginning Invested Capital 369.36 394.75 337.62 322.75 440.47 459.75 433.10 456.03 493.49

ROIC 212.78% 197.78% 217.81% 233.29% 172.73% 171.37% 197.40% 198.56% 200.06%

Economic Profit (EP):Beginning Invested Capital 369.36 394.75 337.62 322.75 440.47 459.75 433.10 456.03 493.49x (ROIC - WACC) 2.07 1.92 2.12 2.28 1.67 1.66 1.92 1.93 1.95

Economic Profit 765.54 758.96 716.73 735.13 736.54 762.53 831.07 880.33 960.04

Check Point Software Technologies Ltd.Valuation of Options Granted under ESPP (in millions)

Current Stock Price $106.12Risk Free Rate 0.65%Current Dividend Yield 0.00%Annualized St. Dev. of Stock Returns 19.40%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 8.54 95.26 5.13 42.03 101,203,000$ Total 8.54 95.26 5.13 -49.81 101,203,000$

Check Point Software Technologies Ltd.Present Value of Operating Lease Obligations (in millions)

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025EYear 1 7.84 7.84 7.37 8.26 9.50 10.75 12.05 13.01 13.93Year 2 4.70 6.86 5.05 5.65 6.50 7.36 8.25 8.91 9.54Year 3 3.04 5.20 3.10 3.47 3.99 4.52 5.07 5.47 5.86Year 4 2.01 4.22 1.76 1.97 2.26 2.56 2.87 3.10 3.32Year 5 1.69 3.67 1.13 1.27 1.46 1.65 1.85 2.00 2.14Thereafter 3.79 2.66 1.03 1.15 1.32 1.50 1.68 1.81 1.94Total Minimum Payments 23.06 30.44 19.44 21.77 25.04 28.35 31.78 34.31 36.74Less: Cumulative Interest 2.07 2.71 1.41 1.58 1.82 2.06 2.31 2.50 2.67PV of Minimum Payments 20.99 27.73 18.03 20.18 23.22 26.29 29.46 31.81 34.07

Implied Interest in Year 1 Payment 0.70 0.92 0.60 0.67 0.77 0.87 0.98 1.06 1.13

Pre-Tax Cost of Debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Years Implied by Year 6 Payment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Expected Obligation in Year 6 & Beyond 1.69 2.66 1.03 1.15 1.32 1.50 1.68 1.81 1.94

Present Value of Lease PaymentsPV of Year 1 7.58 7.59 7.14 7.99 9.19 10.41 11.66 12.59 13.49PV of Year 2 4.40 6.42 4.73 5.30 6.09 6.90 7.73 8.35 8.94PV of Year 3 2.76 4.71 2.81 3.15 3.62 4.10 4.59 4.96 5.31PV of Year 4 1.76 3.70 1.54 1.73 1.99 2.25 2.52 2.72 2.92PV of Year 5 1.44 3.12 0.96 1.08 1.24 1.40 1.57 1.70 1.82PV of 6 & beyond 3.05 2.18 0.85 0.95 1.09 1.23 1.38 1.49 1.60Capitalized PV of Payments 20.99 27.73 18.03 20.18 23.22 26.29 29.46 31.81 34.07

Check Point Software Technologies Ltd.Effects of ESPP Exercise and Share Repurchases on Common Stock Account and Number of Shares Outstanding (in millions)

Number of Options Outstanding (shares): 8.54Average Time to Maturity (years): 5.13Expected Annual Number of Options Exercised: 1.67

Current Average Strike Price: 95.26Cost of Equity: 5.52%Current Stock Price: 106.12

Fiscal Years Ending Dec. 31 2019 2020E 2021E 2022E 2023E 2024E 2025EIncrease in Shares Outstanding: 1.67 1.67 1.67 1.67 1.67 1.67 1.67Average Strike Price: 95.26 95.26 95.26 95.26 95.26 95.26 95.26Increase in Common Stock Account: 158.62 158.62 158.62 158.62 158.62 158.62 158.62

Change in Treasury Stock 1,248.00 890.20 988.12 1,096.81 1,217.46 1,105.68 1,205.19Expected Price of Repurchased Shares: 106.12 106.12 111.98 118.16 124.68 131.57 138.83Number of Shares Repurchased: 11.76 8.39 8.82 9.28 9.76 8.40 8.68

Shares Outstanding (beginning of the year) 156.63 146.54 139.81 132.65 125.04 116.94 110.20Plus: Shares Issued Through ESOP 1.67 1.67 1.67 1.67 1.67 1.67 1.67Less: Shares Repurchased in Treasury 11.76 8.39 8.82 9.28 9.76 8.40 8.68Shares Outstanding (end of the year) 146.54 139.81 132.65 125.04 116.94 110.20 103.18

Check Point Software Technologies Ltd.Sensitivity Tables

159.33$ 50.00% 55.00% 60.00% 65.00% 70.00% 75.00% 80.00%5.00% 169.24 168.95 168.66 168.38 168.09 167.81 167.528.00% 166.22 165.93 165.65 165.36 165.07 164.79 164.50

Marginal 11.00% 163.20 162.92 162.63 162.34 162.06 161.77 161.48Tax Rate 14.00% 160.18 159.90 159.61 159.33 159.04 158.75 158.47

17.00% 157.17 156.88 156.59 156.31 156.02 155.73 155.4520.00% 154.15 153.86 153.57 153.29 153.00 152.72 152.4323.00% 151.13 150.84 150.56 150.27 149.98 149.70 149.41

159.33$ 0.49 0.59 0.69 0.79 0.89 0.99 1.09 4.66% 342.35 280.22 238.27 208.05 185.25 167.45 153.16 5.16% 306.38 251.98 215.05 188.36 168.17 152.37 139.67

ERP 5.66% 277.66 229.31 196.35 172.45 154.33 140.14 128.71 6.16% 254.21 210.71 180.95 159.33 142.91 130.02 119.65 6.66% 234.71 195.18 168.06 148.32 133.31 121.52 112.02 7.16% 218.23 182.02 157.12 138.96 125.14 114.28 105.52 7.66% 204.12 170.72 147.71 130.91 118.11 108.04 99.92

159.33$ 1.25% 2.25% 3.25% 4.25% 5.25% 6.25% 7.25% -16.00% 154.87 155.61 156.36 157.10 157.85 158.59 159.33 Product and -13.00% 155.61 156.35 157.10 157.84 158.59 159.33 160.07 Licenses -10.00% 156.35 157.10 157.84 158.58 159.33 160.07 160.82 Revenue -7.00% 157.09 157.84 158.58 159.33 160.07 160.81 161.56

-4.00% 157.83 158.58 159.32 160.07 160.81 161.55 162.30 -1.00% 158.58 159.32 160.06 160.81 161.55 162.30 163.04 2.00% 159.32 160.06 160.81 161.55 162.29 163.04 163.78

Beta

Cv Growth Security Subsriptions Reveue

Normal Cash Percentage

159.33$ 4.92% 5.12% 5.32% 5.52% 5.72% 5.92% 6.12%0.70% 171.22 164.37 158.12 152.49 147.11 142.24 137.73

Cv Growth 0.80% 174.16 167.02 160.51 154.67 149.09 144.05 139.40 Noplat 0.90% 177.24 169.79 163.02 156.95 151.16 145.94 141.12

1.00% 180.49 172.70 165.64 159.33 153.31 147.90 142.92 1.10% 183.90 175.75 168.38 161.81 155.56 149.95 144.79 1.20% 187.49 178.96 171.26 164.41 157.91 152.08 146.73 1.30% 191.29 182.34 174.28 167.13 160.36 154.30 148.75

159.33$ 0.10% 0.25% 0.40% 0.65% 0.80% 0.95% 1.10%1.20% 178.50 172.80 167.50 159.34 155.05 150.92 147.03

Pre Tax 1.90% 178.49 172.79 167.50 159.33 155.05 150.91 147.03 Cost of Debt 2.60% 178.48 172.78 167.49 159.33 155.04 150.91 147.03

3.32% 178.47 172.78 167.48 159.33 155.04 150.91 147.03 3.80% 178.46 172.77 167.48 159.32 155.04 150.91 147.03 4.50% 178.45 172.76 167.47 159.32 155.04 150.91 147.03 5.20% 178.45 172.76 167.47 159.32 155.03 150.90 147.03

WACC

Risk free Rate

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