Commtouch Reports Third Quarter 2012 Results

                 Commtouch Reports Third Quarter 2012 Results

PR Newswire

MCLEAN, Virginia, November 6, 2012

MCLEAN, Virginia, November 6, 2012 /PRNewswire/ --

Increased New Booking Sales as well as Accelerated Execution on Next
Generation Mobile and SaaS Security Solutions Highlight Strategic Advances 

New Bookings More than Double Year-to-Date versus the Prior Year, Providing an
Enhanced Foundation for Growth in 2013

Closing of FRISK Acquisition and Increased Investment Strengthens Antivirus
Capabilities 

Commtouch® (NASDAQ: CTCH), a leading provider of Internet security technology
and cloud-based services, today announced its third quarter financial results
for the period ending September 30, 2012.

 (Logo: http://photos.prnewswire.com/prnh/20120501/529254 )

Third Quarter 2012 Financial Results:

  oRevenues totaled $5.6 million compared to $5.7 million for the sequential
    second quarter of 2012 and $5.9 million in the third quarter of 2011. The
    decline in revenue was primarily related to the low level of new bookings
    in the previous fiscal year and a modest decline in the level of activity
    among select customers who experienced a slowdown in their own underlying
    businesses.

  oNet income in accordance with US Generally Accepted Accounting Principles
    (US GAAP) was $19,000, compared to net income of $804,000 for the
    sequential second quarter of 2012 and $887,000 in the third quarter of
    2011. The decline in net income was primarily attributable to the impact
    of acquisition related costs as well as the planned higher level of
    investment in sales, marketing and engineering expenses associated with
    the ongoing support of Commtouch's "Software-as-a-Service" strategy
    rollout and upcoming launch, among other factors.

  oGAAP earnings per diluted share were $0.00, compared to $0.03 for the
    sequential second quarter of 2012 and $0.04 in the third quarter of 2011.

  oNon-GAAP net income was $744,000, compared to $1.3 million for the
    sequential second quarter of 2012 and $1.8 million in the third quarter of
    2011.

  oNon-GAAP earnings per diluted share were $0.03, compared to $0.05 for the
    sequential second quarter of 2012 and $0.07 in the third quarter of 2011.

  oCommtouch announced the acquisition of FRISK Software International's
    Antivirus business, accelerating the company's launch of an expanded range
    of antivirus solutions for the OEM and service provider market. The
    acquisition closed on October 1, 2012 and will begin to be integrated into
    Commtouch's full quarterly results beginning in the fourth quarter of
    2012.

  oCash used for operating cash activities during the quarter was $1.4
    million which included $1.0 million as part of a pre-payment plan to
    secure a long-term technological supplier agreement which is projected to
    yield cost effective results in terms of reducing the company's cost of
    revenue and increasing gross margin.

  oCash as of September 30, 2012 was $17.3 million, compared to $19.8 million
    as of June 30, 2012. Cash usage during the quarter included the
    aforementioned $1.0 million pre-paid supplier agreement, $828,000 related
    to the company's share repurchase program activity during the quarter, as
    well as increased capital expenditures related to the execution of the
    company's new SaaS strategy and higher acquisition related expenses, among
    other factors.

Shlomi Yanai, Commtouch's chief executive officer, stated, "Commtouch made
significant progress during the third quarter of 2012 in terms of both
execution and advancing our corporate strategy as we anticipate returning to
sequential revenue growth beginning in the current fourth quarter of 2012. In
terms of execution, our focused sales and marketing efforts generated major
success including a significant $2.2 million contract win in Latin America, a
geography we've specifically targeted for growth this year. We've also seen
increased sales traction across international and U.S. based customers. In
fact, over the last two quarters we have successfully secured more new
business wins than the preceding 12 months combined and our new bookings have
more than doubled year-to-date. This provides, yet another proof point that
our improved execution is yielding immediate results."

"This multiple-year backlog includes committed revenue and major upside for
the company. Based on the positive impact of these contract wins and the
nature of our long-term customer agreements, these multi-year contract wins
are on track to begin more significantly contributing to our revenue growth
and profitability in the coming quarters. While our third quarter financial
results are not yet reflecting the positive impact of the sharp rise in new
bookings due to the nature of our subscription based revenue model and the way
those contracts ramp, we are making excellent progress with regards to setting
the stage growth and improved profitability in 2013." 

"In addition to enhanced execution and posting a sharp increase in new
bookings activity compared to the year ago, Commtouch made significant
progress towards our strategic evolution into a cloud-driven 'security as a
service' solutions provider. We remain on track with the planned rollout of
Commtouch's new Mobile Security SDK product for Android devices in the current
quarter as well as our next generation cloud-based 'security as a service'
offerings for web and email which are targeted for release in the first half
of 2013. Our progress to date in the development of these new growth engines,
and our continued success in significantly increasing Commtouch's new business
bookings, are combining to provide us increased confidence in our strategy and
a solid foundation for future growth," concluded Mr. Yanai.

Today the company also announced that Mr. Ron Ela has indicated his intention
to transition out of his current role as Chief Financial Officer by December
31, 2012. The company has initiated a comprehensive executive search process
and intends to appoint the new incoming Chief Financial Officer by year end.

Announced in May of 2012, Commtouch's Board of Directors authorized the
initiation of a stock repurchase program of the company's ordinary shares in
the open market, in an amount in cash of up to $2.5 million. During the third
quarter Commtouch repurchased 297,000 shares at an aggregate cost of
approximately $828,000. As of September 30, 2012, approximately 495,000 shares
have been repurchased through the program at an aggregate cost of
approximately $1.4 million.

For information regarding the non-GAAP financial measures discussed in this
release, please see "Use of Non-GAAP Financial Information" and
"Reconciliation of Non-GAAP to GAAP Financial Information."

Third Quarter 2012 Business Highlights:

  oCommtouch announced the acquisition of FRISK Software International's
    Antivirus business, helping accelerate the company's strategy to deploy an
    expanded range of antivirus solutions for the OEM and service provider
    market, including private label solutions. 
  oCommtouch's enhanced global sales and marketing team continued to deliver
    sharply higher new booking activity during the third quarter. Overall,
    new booking activity over the last six months has already exceeded total
    new booking activity in the preceding twelve month period. Under
    Commtouch's long-term agreement model, the majority of contracts signed
    average approximately three years in length. These new multi-year
    contracts are expected to begin coming online and positively impacting
    Commtouch's revenue growth as they ramp in the coming quarters.
  oKey new client wins during the quarter reflected our enhanced
    international sales and marketing penetration, including:

       oHighlighting penetration into Latin America, a new managed service
         provider customer headquartered in Brazil awarded Commtouch a three
         year contract valued at $2.2 million for Internet security solutions
         supporting their customers throughout Brazil and Latin America. 
       oAVG Technologies, a leading vendor of security software, and
         Commtouch announced a strategic long-term partnership during the
         quarter. AVG has deployed Commtouch's GlobalView Web URL technology
         into AVG Family Safety and AVG CloudCare™ underscoring Commtouch's
         uniquely innovative approach to protection.
       oOne of the world's leading Internet search engine and web portal
         companies selected Commtouch to provide targeted URL filtering data
         services.
       oCommtouch was selected by a French provider information security
         offerings and Unified Threat Management solutions to provide its
         GlobalView URL Classification Technology in a three year contract. 
       oIn Germany, a provider of custom solutions for optimized security and
         workflow added Commtouch's Command antivirus solution to their suite
         of Commtouch solutions.
       oCustomer renewal activity during the quarter was strong with more
         than 95% of eligible customers renewing.

Business Outlook

Based on the company's nine month year-to-date results and the projected
influence of the acquisition of FRISK Software International's Antivirus
business which was announced late in the third quarter and closed on October
1, 2012, as well as current expectations for the remainder of 2012, the
company is updating its current outlook for 2012. The company now anticipates
full year 2012 revenue will be approximately $23.0 million, in line with the
prior full year 2011. Commtouch expects to return to sequential revenue
growth beginning in the current fourth quarter of 2012. Full year 2012
non-GAAP net income is expected to be greater than $4.0 million as the company
accounts for the initial ramp of the FRISK business as well as higher costs
associated with the company's investment and integration around FRISK within
Commtouch, among other factors.

The above outlook is as of the date of this release, and the company
undertakes no obligation to update its estimates in the future. 

Use of Non-GAAP Measures

Non-GAAP financial measures consist of GAAP financial measures adjusted to
exclude: share based compensation expenses, amortization and impairment of
acquired intangible assets, deferred taxes, acquisition related costs and
adjustments to earnout obligation related to the Command antivirus
acquisition. The purpose of such adjustments is to give an indication of the
company's performance exclusive of non-cash charges and other items that are
considered by management to be outside of the company's core operating
results. The company's non-GAAP financial measures are not meant to be
considered in isolation or as a substitute for comparable GAAP measures, and
should be read only in conjunction with the company's consolidated financial
statements prepared in accordance with GAAP. Company management regularly uses
supplemental non-GAAP financial measures internally to understand, manage and
evaluate our business and make operating decisions.

These non-GAAP measures are among the primary factors management uses in
planning for and forecasting future periods. The company believes this
adjustment is useful to investors as a measure of the ongoing performance of
our business. The company believes these non-GAAP financial measures provide
consistent and comparable measures to help investors understand the company's
current and future operating cash flow performance. These non-GAAP financial
measures may differ materially from the non-GAAP financial measures used by
other companies. Reconciliation between results on a GAAP and non-GAAP basis
is provided in a table immediately following the Consolidated Statements of
Income. The presentation of this non-GAAP financial information is not
intended to be considered in isolation or as a substitute for the financial
information prepared and presented in accordance with GAAP. Management uses
both GAAP and non-GAAP measures when evaluating the business internally and
therefore felt it important to make these non-GAAP adjustments available to
investors.

Financial Results Conference Call

The company has scheduled a conference call later today, November 6, 2012 at
10:00 a.m. ET to review the third quarter 2012 operational and financial
highlights, as well as walk through a strategic overview of the evolution of
the company's growth strategy.

To participate in the call, please dial one of the following access numbers
ten minutes prior to the start time of the call:

US Dial-in Number: 1-877-407-9210
International Dial-in Number: +1-201-689-8049
Israel Dial-in Number: 00-800-4626-6666
at:
10:00 a.m. Eastern Time, 7:00 a.m. Pacific Time,
3:00 p.m. UK Time, 5:00 p.m. Israel Time

The call will be simultaneously webcast live from a link on Commtouch's
website at http://www.commtouch.com.

For those unable to listen to the live call, a replay of the call will be
available from the day after the call in the investor relations section of
Commtouch's website.

About Commtouch

Commtouch® (NASDAQ: CTCH) is a leading provider of Internet security
technology and cloud-based services for vendors and service providers,
increasing the value and profitability of our customer's solutions by
protecting billions of Internet transactions on a daily basis. With six
global data centers and award-winning, patented technology, Commtouch's email,
web, and antivirus capabilities easily integrate into our customers' products
and solutions, keeping safe over 350 million end users. To learn more, visit
http://www.commtouch.com.

• Blog: http://blog.commtouch.com/cafe

• Facebook: http://www.facebook.com/commtouch

• LinkedIn: http://www.linkedin.com/company/commtouch

• Twitter: @Commtouch

Recurrent Pattern Detection, RPD, Zero-Hour and GlobalView are trademarks, and
Commtouch is a registered trademark of Commtouch. U.S. Patent No. 6,330,590 is
owned by Commtouch. All other trademarks are the property of their respective
owners.

This press release contains forward-looking statements, including projections
about our business, within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. For example,
statements in the future tense, and statements including words such as
"expect," "plan," "estimate," "anticipate," or "believe" are forward-looking
statements. These statements are based on information available to us at the
time of the release; we assume no obligation to update any of them. The
statements in this release, including the company's expectations that i) new
contracts will impact positively the company's revenues during the fourth
quarter of 2012 and 2013, ii) the company is on track to release its new
offerings, and iii) the company will meet its business outlook for 2012, are
not guarantees of future performance and actual results could differ
materially from our current expectations as a result of numerous factors,
including business conditions and growth or deterioration in the Internet
market, commerce and the general economy, both domestic as well as
international; fewer than expected new-partner relationships; competitive
factors, including pricing pressures; technological developments, and products
offered by competitors; the ability of our OEM partners to successfully
penetrate markets with products integrated with Commtouch technology; a slower
than expected acceptance rate forour newerproduct offerings; availability of
qualified staff; and technological difficulties and resource constraints
encountered in developing new products, as well as those risks described in
the text of this press release and the company's Annual Reports on Form 20-F
and reports on Form 6-K, which are available through http://www.sec.gov.

                                COMMTOUCH SOFTWARE LTD.
                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In US$ thousands, except per share amounts)

                                        Three months ended         Nine months ended
                                           September 30              September 30
                                     ----------------------     ----------------------
                                        2012         2011          2012         2011
                                     ---------    ---------     ---------    ---------
                                     Unaudited    Unaudited     Unaudited    Unaudited

    Revenues                           $5,558       $5,855       $17,125      $17,066

    Cost of revenues                      917        1,019         2,983        2,967
                                     ---------    ---------     ---------    ---------

    Gross profit                        4,641        4,836        14,142       14,099
                                     ---------    ---------     ---------    ---------

    Operating expenses:

    Research and development            1,462        1,342         4,096        3,966

    Sales and marketing                 1,564        1,138         3,994        3,847

    General and administrative          1,550        1,209         4,265        3,106
                                     ---------    ---------     ---------    ---------

    Total operating expenses            4,576        3,689        12,355       10,919
                                     ---------    ---------     ---------    ---------
    Operating profit                       65        1,147         1,787        3,180

    Financial expenses (income), net      (63)         (15)         (150)          44
                                     ---------    ---------     ---------    ---------

    Income before taxes                   128        1,162         1,937        3,136

    Income taxes (tax benefit), net       109          275           (95)        (187)
                                     ---------    ---------     ---------    ---------

    Net income attributable to
    ordinary and equivalently
    participating shareholders            $19         $887        $2,032       $3,323
                                     =========    =========     =========    =========

    Earnings per share - basic          $0.00        $0.04         $0.08        $0.14
                                     =========    =========     =========    =========

    Earnings per share - diluted        $0.00        $0.04         $0.08        $0.13
                                     =========    =========     =========    =========

    Weighted average number of
    shares outstanding:
    Basic                              24,355       23,605        24,358       23,541
                                     =========    =========     =========    =========
    Diluted                            24,845       24,726        24,984       24,678
                                     =========    =========     =========    =========

                                  COMMTOUCH SOFTWARE LTD.
              RECONCILIATION OF SELECTED GAAP MEASURES TO NON GAAP MEASURES
                      (In US$ thousands, except per share amounts)

                                          Three months ended          Nine months ended
                                              September 30               September 30
                                        ----------------------     -----------------------
                                           2012         2011          2012          2011
                                        ---------    ---------     ---------     ---------
                                        Unaudited    Unaudited     Unaudited     Unaudited

    GAAP operating profit                   $65        $1,147        $1,787        $3,180
    Stock-based compensation(1)             386           281         1,098           865
    Other acquisition related costs (2)     220             -           377            53
    Amortization of intangible assets(3)    101           110           303           375
    Adjustment to earnout obligation(4)       -           196             -           196
                                        ---------    ---------     ---------     ---------
    Non-GAAP operating profit              $772        $1,734        $3,565        $4,669
                                        =========    =========     =========     =========

    GAAP net income                         $19          $887        $2,032        $3,323
    Stock-based compensation(1)             386           281         1,098           865
    Other acquisition related costs(2)      220             -           377            53
    Amortization of intangible assets(3)    101           110           303           375
    Adjustment to earnout obligation(4)       -           220            28           301
    Income taxes(5)                          18           275          (199)         (187)
                                        ---------    ---------     ---------     ---------
    Non-GAAP net income                    $744        $1,773        $3,639        $4,730
                                        =========    =========     =========     =========

    GAAP earnings per share               $0.00         $0.04         $0.08         $0.13
    Stock-based compensation(1)            0.02          0.01          0.04          0.04
    Other acquisition related costs(2)    0.009             -         0.015         0.002
    Amortization of intangible assets(3)  0.004         0.004         0.012         0.015
    Adjustment to earnout obligation(4)       -         0.009         0.001         0.012
    Income taxes(5)                       0.001         0.011        (0.008)       (0.008)
                                        ---------    ---------     ---------     ---------
    Non-GAAP earnings per share           $0.03         $0.07         $0.15         $0.19
                                        =========    =========     =========     =========

    Numbers of shares used in
    computing Non-GAAP earnings
    per share (diluted)                  24,845        24,726        24,984        24,678
                                        =========    =========     =========     =========

    (1) Stock-based compensation
    Cost of revenues                         $9            $5           $27           $17
    Research and development                 84            72           222           218
    Sales and marketing                     103            87           269           272
    General and administrative              190           117           580           358
                                        ---------    ---------     ---------     ---------
                                           $386          $281        $1,098          $865
                                        =========    =========     =========     =========
    (2) Other acquisition related costs
    General and administrative              220             -           377            53
                                        ---------    ---------     ---------     ---------
                                           $220             -          $377           $53
                                        =========    =========     =========     =========
    (3) Amortization of intangible assets
    Cost of revenues                        $48           $55          $144          $147
    Sales and marketing                      53            55           159           228
                                        ---------    ---------     ---------     ---------
                                           $101          $110          $303          $375
                                        =========    =========     =========     =========
    (4) Adjustment to earnout obligation
    General and administrative                -          $196             -          $196
    Financial expenses (income), net          -            24            28           105
                                        ---------    ---------     ---------     ---------
                                              -          $220           $28          $301
                                        =========    =========     =========     =========
    (5) Income taxes
    Deferred tax asset - tax benefit         18           275          (199)         (187)
                                        ---------    ---------     ---------     ---------
                                            $18          $275         ($199)        ($187)
                                        =========    =========     =========     =========


                               COMMTOUCH SOFTWARE LTD.
                        CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                    
                                                     September 30    December 31
                                                     ------------   ------------
                                                          2012           2011
                                                     ------------   ------------
                                                       Unaudited       Audited
                                                           In US$ thousands
    Assets:
    Current Assets:
    Cash and cash equivalents                           $17,334        $20,868
    Trade receivables                                     4,328          2,838
    Deferred income taxes                                 2,106          1,996
    Prepaid expenses and other accounts receivable        1,147            463
                                                     ------------   ------------
        Total current assets                             24,915         26,165
                                                     ------------   ------------

    Long-term lease deposits                                 45             40
    Severance pay fund                                      974          1,031
    Property and equipment, net                           1,059            885
    Deferred income taxes                                 2,978          2,889
    Intangible assets, net                                3,201          3,505
    Goodwill                                              3,792          3,792
    Investment in affiliate                               1,227          1,227
                                                     ------------   ------------
        Total assets                                     38,191         39,534
                                                     ============   ============

    Liabilities and Shareholders' Equity
    Current Liabilities:
    Accounts payable                                        566            551
    Employees and payroll accruals                        1,439          1,215
    Accrued expenses and other liabilities                  538            628
    Other short term liabilities                              -          3,372
    Deferred revenues                                     2,631          3,058
                                                     ------------   ------------
        Total current liabilities                         5,174          8,824
                                                     ------------   ------------

    Deferred revenues                                       659            694
    Accrued severance pay                                 1,112          1,192
                                                     ------------   ------------
        Total liabilities                                 1,771          1,886
                                                     ------------   ------------

    Shareholders' equity                                 31,246         28,824
                                                     ------------   ------------
        Total liabilities and shareholders' equity      $38,191        $39,534
                                                     ============   ============


                                       COMMTOUCH SOFTWARE LTD.
                                CONDENSED CONSOLIDATED CASH FLOW DATA
                                          (In US$ thousands)

                                               Three months ended      Nine months ended
                                                  September 30            September 30
                                             ---------------------   ---------------------
                                                2012        2011        2012        2011
                                             ---------   ---------   ---------   ---------
    Cash flow from operating activities      Unaudited   Unaudited   Unaudited   Unaudited

    Net income                                    $19        $887      $2,032      $3,323

    Adjustments:
    Depreciation                                  155         136         432         414
    Compensation related to options
    issued to employees and consultants           386         281       1,098         848
    Amortization of intangible assets             102         111         304         376

    Changes in assets and liabilities:
    Increase in trade receivables                (794)       (825)     (1,490)       (468)
    Decrease (increase) in deferred taxes          18         275        (199)       (187)
    Increase in prepaid expenses and
    other receivables                            (848)       (241)       (684)       (134)
    (Decrease) Increase in accounts payable      (113)       (126)         38        (177)
    (Decrease) Increase in employees and
    payroll accruals, accrued expenses and
    other liabilities                            (132)        460         162         562
    (Decrease) Increase in deferred revenues     (154)        537        (462)        (89)
    (Decrease) Increase in accrued severance
    pay, net                                      (26)         10         (23)          7
                                             ---------   ---------   ---------   ---------
    Net cash (used in) provided by
    operating activities                       (1,387)      1,505       1,208       4,475

    Cash from investing activities
    Change in long - term lease deposits            6           9          (5)         (2)
    Consideration paid for acquisition
    of Antivirus business                           -           -      (3,400)          -
    Purchase of property and equipment           (309)        (91)       (629)       (422)
                                             ---------   ---------   ---------   ---------
    Net cash used in investing activities        (303)        (82)     (4,034)       (424)

    Cash flows from financing activities
    Buyback of outstanding shares                (828)          -      (1,441)          -
    Proceeds from options and warrants
    exercised                                      29         151         733         163
                                             ---------   ---------   ---------   ---------
    Net cash (used in) provided by
    financing activities                         (799)        151        (708)        163

    Increase (decrease) in cash and
    cash equivalents                           (2,489)      1,574      (3,534)      4,214
    Cash and cash equivalents at the
    beginning of the period                    19,823      16,072      20,868      13,432
                                             ---------   ---------   ---------   ---------
    Cash and cash equivalents at the
    end of the period                         $17,334     $17,646     $17,334     $17,646
                                             =========   =========   =========   =========

Company Contact
Ron Ela    
Chief Financial Officer
Tel: (US) +1-650-864-2291
(Int'l) +972-9-8636813
ron.ela@commtouch.com

US Investor Relations Contact
Christopher Chu
Grayling
Tel: (US) +1-646-284-9426 
commtouch@grayling.com

IsraelInvestor Relations Contact
Iris Lubitch
EffectiveIR
Tel: +972-54-2528007
Iris@EffectiveIR.co.il

Media Contact
Matthew Zintel
Zintel Public Relations
Tel: (US) +1-281-444-1590
matthew.zintel@zintelpr.com

SOURCE Commtouch
 
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