Commtouch Reports Second Quarter 2013 Results

                Commtouch Reports Second Quarter 2013 Results

Second Quarter 2013 Revenues of $8.1 Million, Rose 42% Versus a Year Ago

Net Income Improvement from First Quarter 2013

Updates 2013 Full Year GAAP Revenue Guidance to Between $32 to $33 Million

PR Newswire

MCLEAN, Va., Aug. 6, 2013

MCLEAN, Va., Aug. 6, 2013 /PRNewswire/ --Commtouch® (NASDAQ: CTCH), a leading
provider of Internet security technology and cloud-based services, today
announced its second quarter 2013 financial results for the period ending June
30, 2013.

(Logo: http://photos.prnewswire.com/prnh/20130731/MM56946LOGO)

Second Quarter 2013 Financial Highlights:

  oRevenues in accordance with U.S. Generally Accepted Accounting Principles
    (US GAAP) totaled $8.1 million for the second quarter of 2013 compared to
    $7.9 million for the sequential first quarter of 2013 and $5.7 million in
    the second quarter of 2012.
  oNon-GAAP revenues totaled $8.2 million for the second quarter of 2013
    compared to $8.1 million for the sequential first quarter of 2013 and $5.7
    million in the second quarter of 2012. The difference between non-GAAP and
    GAAP revenue is derived from the fact that deferred revenues consolidated
    from acquired companies are recorded based on fair value rather than book
    value for GAAP purposes.
  oGAAP net loss for the second quarter was $0.7 million compared to net loss
    of $1.3 million for the sequential first quarter of 2013 and net income of
    $0.8 million in the second quarter of 2012. Second quarter 2013 results
    include an acquisition related earn out adjustment of $0.3 million and a
    $0.1 million net litigation settlement in favor of the company and
    relating to contractual issues. First quarter 2013 results included an
    acquisition related earn out adjustment of $0.2 million and acquisition
    related expenses of $0.2 million.
  oGAAP net loss per diluted share for the second quarter was $0.03, compared
    to a net loss of $0.05 for the sequential first quarter of 2013 and GAAP
    earnings per share of $0.03 in the second quarter of 2013. Second quarter
    and first quarter 2013 results include the aforementioned adjustments and
    expenses.
  oNon-GAAP net income for the second quarter 2013 was $0.1 million compared
    to $0.1 million for the sequential first quarter of 2013 and $1.3 million
    in the second quarter of 2012.
  oNon-GAAP earnings per diluted share for the second quarter 2013 were
    $0.00, compared to $0.00 for the sequential first quarter of 2013 and
    $0.05 in the second quarter of 2012.
  oCash generated by operating activities during the quarter was $1.5
    million.
  oCash as of June 30, 2013 was $5.0 million, compared to $4.9 million as of
    March 31, 2013.

"We delivered a solid quarter and saw strong demand for our cloud-based
detection services globally," said Shlomi Yanai, chief executive officer at
Commtouch. "In addition, we won key new customers for our recently launched
Private Label Email Security-as-a-Service and Mobile Security for Android
products."

"The demand we are seeing for our new cloud-based products is very encouraging
and gives us confidence in our strategy to transition the company into a
complete could-based Security-as-a-Service provider," Mr. Yanai added. "We
continue to invest in our sales and marketing capabilities to support our
upcoming product launches, however, it has taken us longer than anticipated to
complete some key hires. As a result, we believe it is prudent to moderate
our full year guidance to reflect the potential of a slower sales ramp."

"We are very pleased with our financial performance in the quarter, which was
marked by enhanced profitability and strong cash flow generation. We made good
progress on streamlining the organization and improving the company's cost
structure during the quarter," said Brian Briggs, chief financial officer at
Commtouch. "The integration of our Q4 2012 acquisitions continues to proceed
well and we expect this process to be largely complete in the third quarter."

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."

Business Highlights:

  oDuring the second quarter, Commtouch won key customers and hosting clients
    for its new private label Email Security-as-a-Service product, the first
    major release in a series of planned cloud-based product introductions.
    These initial contracts have the potential to grow substantially as
    customers begin to roll out services.
  oThe company secured its first win for the recently launched Mobile
    Security for Android solution with a key European partner.
  oCommtouch continued to see strong demand from a number of vendors and
    service providers both in the United States and internationally for its
    cloud-based detection services, most notably our outbound and inbound
    anti-spam, URL filtering and AV detection.
  oCommtouch remains on track to launch its new cloud-based Web security
    solutions in the second half of 2013. Those new solutions will focus on
    simple to provision and use Web security in the cloud services that will
    be delivered by our partners as private label services. All will be built
    on Commtouch's market-leading security detection services.
  oCommtouch remains on track with the research and development of a new APT
    service toward the end of 2013.
  oIn June, the company received the 2013 eco Internet Award in the
    "Security" category for our Mobile Security for Android solution. Mobile
    Security for Android is the first-ever OEM solution that offers
    cloud-assisted antivirus and Web security services delivered through a
    single, easy to integrate client SDK for the popular mobile operating
    system. 

Results of Extraordinary General Meeting

At a delayed extraordinary general meeting of shareholders held on August 1,
2013, shareholders approved the following proposals: to elect a new outside
director, David Earhart, to the company's Board of Directors; to approve the
company's executive compensation policy; to ratify the bonus paid to our Chief
Executive Officer; and to approve a change in the amount of cash compensation
paid to non-employee directors.

Additional details on the above matters can be found in the company's proxy
statement, located on the Investor Relations tab of the company's website.

Business Outlook 

Based on current expectations, which include a slower ramp in the company's
sales and marketing organization, Commtouch has moderated its financial
outlook for the full year 2013. The company now anticipates full year 2013
revenue between $32.0 million and $33.0 million, an increase of approximately
34% to 38% compared with full year 2012. Full year 2013 GAAP net loss is
expected to be less than $2.0 million and non-GAAP net income is expected to
be greater than $1.5 million.

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: stock based compensation expenses, amortization and impairment of
acquired intangible assets, executive termination costs, deferred taxes,
acquisition related costs and adjustments to earn-out obligations. 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, August 6, 2013, at
10:00 a.m. ET to review the second quarter 2013 highlights, as well as walk
through a strategic overview and evolution of the company's growth strategy.

To participate, please call one of the following teleconferencing numbers by
dialing in at least 10 minutes before the conference call commences. If you
are unable to connect using the toll-free numbers, please try the
international dial-in number.

US Dial-in Number: 1-877-407-8289
Israel Dial-in Number: 00-800-2246-2666
International Dial-in Number: 201-689-8341
at:

10:00 a.m. Eastern Time, 5:00 p.m. Israel Time

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

For those unable to listen to the live call, a webcast replay of the call will
be available from the day after the call in the investor relations section of
Commtouch's corporate 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 customers' solutions by protecting
billions of Internet transactions on a daily basis. With 12 global data
centers and renowned technology, Commtouch's email, Web, and antivirus
capabilities easily integrate into customers' products and solutions, keeping
more than 350 million end users safe. To learn more, visit
http://www.commtouch.com.

  oBlog: http://blog.commtouch.com/cafe
  oFacebook: http://www.facebook.com/commtouch
  oLinkedIn: http://www.linkedin.com/company/commtouch
  oTwitter: @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 i) the company's revised 2013 revenue
and profit forecasts, and ii) the belief that the initial Email
Security-as-a-Service contracts have the potential to grow substantially as
customers begin to roll out services, 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 www.sec.gov.

Company Contact:                      Israel Investor Relations Contact:
Brian Briggs, Chief Financial Officer Iris Lubitch
Commtouch                             EffectiveIR
+1.703.760.3444                       +972.54.252.8007
brian.briggs@commtouch.com           Iris@EffectiveIR.co.il
U.S. Investor Contact:                Commtouch Media Contact:
Monica Gould                          Matthew Zintel
The Blueshirt Group                   Zintel Public Relations
+1.212.871.3927                       +1.281.444.1590
monica@blueshirtgroup.com             matthew.zintel@zintelpr.com



COMMTOUCH SOFTWARE LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In US$ thousands, except per share amounts)
                                    Three months ended   Six months ended
                                    June 30               June 30
                                    2013       2012       2013       2012
                                    Unaudited  Unaudited  Unaudited  Unaudited
Revenues                          $8,055     $5,671     $15,980    $11,567
Cost of revenues                  1,756      1,014      3,534      2,066
Gross profit                       6,299      4,657      12,446     9,501
Operating expenses:
Research and development          2,182      1,364      4,446      2,634
Sales and marketing               2,537      1,288      5,302      2,430
General and administrative        2,263      1,384      4,478      2,715
Total operating expenses          6,982      4,036      14,226     7,779
Operating profit (loss)             (683)      621        (1,780)    1,722
Financial income (expenses), net   (358)      64         (543)      87
Income (loss) before taxes          (1,041)    685        (2,323)    1,809
Tax benefit                         296        119        319        204
Net income (loss) attributable to
ordinary and equivalently           ($745)     $804       ($2,004)   $2,013
participating shareholders
Earning (loss) per share- basic     ($0.03)    $0.03      ($0.08)    $0.08
Earning (loss) per share- diluted  ($0.03)    $0.03      ($0.08)    $0.08
Weighted average number of shares
outstanding:
Basic                              26,128     24,556     26,032     24,359
Diluted                           26,128     25,219     26,032     25,054



COMMTOUCH SOFTWARE LTD.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(In US$ thousands, except per share amounts)
                                    Three months ended   Six months ended
                                    June 30               June 30
                                    2013       2012       2013       2012
                                    Unaudited  Unaudited  Unaudited  Unaudited
GAAP operating profit (loss)        ($683)     $621       ($1,780)   $1,722
Stock-based compensation (1)        344        348        674        712
Other acquisition related costs (2) -          157        142        157
Amortization of intangible assets   329        101        765        202
(3)
Adjustment to Earn-out              -          -          (3)        -
liabilities(4)
Executive terminations (6)          -          -          165        -
Adjustment to deferred revenues (7) 141        -          337        -
Settlement agreements(8)            75         -          75         -
Non-GAAP operating profit           $206       $1,227     $375       $2,793
GAAP net income (loss)              ($745)     $804       ($2,004)   $2,013
Stock-based compensation (1)        344        348        674        712
Other acquisition related costs (2) -          157        142        157
Amortization of intangible assets   329        101        765        202
(3)
Adjustment to Earn-out              261        -          431        28
liabilities(4)
Income taxes (5)                   (279)      (101)      (371)      (217)
Executive terminations (6)          -          -          165        -
Adjustment to deferred revenues (7) 141        -          337        -
Settlement agreements(8)            75         -          75         -
Non-GAAP net income                 $126       $1,309     $214       $2,895
GAAP earnings (loss) per share      ($0.03)    $0.03      ($0.08)    $0.08
Stock-based compensation (1)        0.01       0.01       0.03       0.03
Other acquisition related costs (2) -          0.01       0.01       0.01
Amortization of intangible assets   0.01       0.00       0.03       0.01
(3)
Adjustment to Earn-out              0.01       -          0.02       0.00
liabilities(4)
Income taxes (5)                   (0.01)     (0.00)     (0.01)     (0.01)
Executive terminations (6)          -          -          0.01       -
Adjustment to deferred revenues (7) 0.01       -          0.01       -
Settlement agreements(8)            0.00       -          0.00       -
Non-GAAP earnings per share         $0.00      $0.05      $0.01      $0.12
Numbers of shares used in
computing Non-GAAP earnings per    26,132     25,219     26,191     25,054
share (diluted)



COMMTOUCH SOFTWARE LTD.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS (continued)
(In US$ thousands, except per share amounts)
                                    Three months ended   Six months ended
                                    June 30               June 30
                                    2013       2012       2013       2012
                                    Unaudited  Unaudited  Unaudited  Unaudited
(1) Stock-based compensation
Cost of revenues                  $14        $9         $26        $18
Research and development          63         71         121        138
Sales and marketing               76         78         135        166
General and administrative        191        190        392        390
                                    $344       $348       $674       $712
(2) Other acquisition related
costs
General and administrative         -          157        142        157
                                    -          $157       $142       $157
(3) Amortization of intangible
assets
Cost of revenues                  $142       $48        $330       $96
Sales and marketing               187        53         435        106
                                    $329       $101       $765       $202
(4) Adjustment to Earn-out
liabilities
General and administrative        -          -          ($3)       -
Financial expenses, net            261        -          434        28
                                    $261       -          $431       $28
(5) Income taxes
Deferred tax asset - tax benefit    (279)      (101)      (371)      (217)
                                    ($279)     ($101)     ($371)     ($217)
(6) Executive terminations
General and administrative         -          -          165        -
                                    -          -          $165       -
(7) Adjustment to deferred
revenues
Revenues                            141        -          337        -
                                    $141       -          $337       -
(8)Settlement agreements
General and administrative         75         -          75         -
                                    $75        -          $75        -



COMMTOUCH SOFTWARE LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
                                                      June 30    December 31
                                                      2013       2012
                                                      Unaudited  Audited
                                                      In US$ thousands
 Assets:
 Current Assets:
Cash and cash equivalents                            $4,951     $5,137
Trade receivables                                     5,171      5,996
Deferred income taxes                                 2,289      2,239
Prepaid expenses and other accounts receivable       2,420      1,503
Total current assets                                14,831     14,875
Long-term lease deposits                             63         57
Severance pay fund                                   785        756
Property and equipment, net                          2,464      1,608
Deferred income taxes                                 3,423      3,348
Intangible assets, net                                36,118     37,086
Investment in affiliate                               1,483      1,403
Total assets                                          59,167     59,133
 Liabilities and Shareholders' Equity
 Current Liabilities:
Current Credit line                                   3,003      -
Accounts payable                                     1,065      958
Employees and payroll accruals                       2,309      2,280
Accrued expenses and other liabilities               1,013      1,587
Short-term Earn-out liabilities                       1,795      4,048
Deferred revenues                                     4,935      4,535
Total current liabilities                           14,120     13,408
Long term deferred revenues                           2,036      492
Long term deferred tax                                2,911      3,187
Long term Earn-out liabilities                        4,987      6,409
Accrued severance pay                                935        915
Total long-term liabilities                           10,869     11,003
Shareholders' equity                                 34,178     34,722
Total liabilities and shareholders' equity            $59,167    $59,133



COMMTOUCH SOFTWARE LTD.
CONDENSED CONSOLIDATED CASH FLOW DATA
(In US$ thousands)
                                    Three months ended   Six months ended
                                    June 30               June 30
                                    2013       2012       2013       2012
Cash flow from operating activities Unaudited  Unaudited  Unaudited  Unaudited
Net income (loss)                   ($745)     $804       ($2,004)   $2,013
Adjustments:
Depreciation                       278        126        497        277
Compensation related to options     344        348        674        712
issued to employees and consultants
Amortization of intangible assets   329        101        765        202
Accrued interest and exchange rate  (2)        -          (2)        -
differences on credit line
Accretion of Earn-out liabilities   261        -          431        28
Changes in assets and liabilities:
Decrease (increase) in trade        1,195      (161)      812        (696)
receivables
Increase in deferred taxes          (279)      (101)      (372)      (217)
Decrease in prepaid expenses and    (102)      7          (1,002)    164
other receivables
Increase in accounts payable        474        334        88         151
Increase (decrease) in employees
and payroll accruals, accrued       61         254        (516)      266
expenses and other liabilities
Increase (decrease) in deferred     (321)      (328)      1,958      (308)
revenues
Increase (decrease) in accrued      (22)       7          (9)        3
severance pay, net
Net cash provided by operating      1,471      1,391      1,320      2,595
activities
Cash from investing activities
Change in long - term lease         (8)        (11)       (6)        (11)
deposits
Investment in affiliate             (80)       -          (80)       -
Purchase of property and equipment  (755)      (187)      (1,336)    (320)
Net cash used in investing          (843)      (198)      (1,422)    (331)
activities
Cash flows from financing
activities
Credit line                         3,005      -          3,005      -
Buyback of outstanding shares       -          (567)      -          (613)
Earn out payment of acquisition     (3,994)    (3,400)    (3,994)    (3,400)
Proceeds from options exercised     433        559        919        704
Net cash used in financing          (556)      (3,408)    (70)       (3,309)
activities
Effect of exchange rate changes on  6          -          (14)       -
cash
Increase (decrease) in cash and     72         (2,215)    (172)      (1,045)
cash equivalents
Cash and cash equivalents at the    4,873      22,038     5,137      20,868
beginning of the period
Cash and cash equivalents at the    $4,951     $19,823    $4,951     $19,823
end of the period

SOURCE Commtouch

Website: http://www.commtouch.com
 
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