Commtouch Software Sees New Bookings
By Ken Nagy, CFA
On November 6, 2012,
Commtouch Software Ltd. (
a cloud-based Internet security provider, reported financial
results for its third quarter and nine months ended September 30,
Commtouch reported solid progress with new booking sales more
than doubling year over year and accelerated execution on its
next generation mobile and SaaS security solutions.
While the increased new booking sales are expected to
provide an enhanced foundation for growth in 2013, the enhanced
performance of next generation mobile and SaaS security solutions
highlight the Company's strategic advances.
Still, third quarter 2012 revenues amounted to $5.558 million
compared to $5.855 million for the comparable quarter of 2011.
The decline in revenue was primarily a result of 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.
Second quarter 2012 GAAP net income fell $868,000 to $19,000 from
$887,000 during the three months ended September 30, 2011.
The drop was primarily due 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.
It should be noted that during the third quarter, Commtouch
announced the acquisition of FRISK Software International's
The acquisition is expected to help accelerate the Company's
strategy to deploy an expanded range of antivirus solutions for
the OEM and service provider market, including private label
Still, while gross margin improved year over year to 83.5 percent
from 82.6 percent for the three months ended September 30, 2011,
total operating expenses increased year over year by $887,000.
Sequentially, gross margin improved from 82.1 percent for the
three months ended June 30, 2012.
The improvement to gross margin on a year over year and
sequential basis was primarily a result of management's
continued steps to optimize cost.
Based on a weighted average number of diluted common shares of
24.845 million, GAAP diluted net income per share resulted in
$0.00 per share for the third quarter fiscal 2012. This
compares to diluted net income per share of $0.04 on a weighted
average number of diluted shares of 24.726 million during the
three months ended September 30, 2011.
Non-GAAP net income for the third quarter of 2012 fell year over
year by $1.029 million to $744,000 and non-GAAP earnings per
diluted share for the third quarter of 2011 fell to $0.03
compared to $0.07 for the three months ended September 30, 2011.
For the nine months ended September 30, 2012, year over year
revenues improved by $59,000 to $17.125 million from $17.066
million for the first nine months of fiscal 2011.
Still, GAAP net income for the nine months fell by $1.291 million
year over year to $2.032 million for the nine months ended
September 30, 2012. This compares to $3.323 million for the
comparable nine months ended September 30, 2011.
Gross margin for the nine months held steady at 82.6 percent
while total operating expenses increased year over year by $1.436
Based on a weighted average number of diluted shares of 24.984
million shares, diluted net income per share resulted in net
income of $0.08 per diluted share during the first nine months of
fiscal 2012. This compared to a diluted net income per
share of $0.13 on a weighted average number of diluted shares of
24.678 million shares during the nine months ended September 30,
On a non-GAAP basis, net income for the first nine months of 2012
dropped year over year by $1.091 million to $3.639 million and
non-GAAP earnings per diluted share for the first nine months of
2012 was $0.15 compared to $0.19 for the nine months ended
September 30, 2011.
Although cash and equivalents dropped sequentially by $2.489
million to $17.334 million, cash usage during the quarter
included a $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.
Additionally, operating cash flow for the third quarter was
steady on a sequential basis at $1.4 million.
Still, cash used for operating cash activities during the quarter
included $1.0 million as part of a pre-payment plan to secure a
long-term technological supplier agreement.
It should further be noted that this technological supplier
agreement is projected to yield cost effective results in terms
of reducing the company's cost of revenue and increasing gross
Moreover, Commtouch's global sales and marketing infrastructure
sustained impressive results and continues to set the stage for
renewed revenue growth.
The Company's focused sales and marketing efforts generated major
successes including a significant $2.2 million contract win in
Latin America as well as increased sales traction across
international and U.S. based customers.
Matter of fact, Commtouch has successfully secured more new
business wins over the last two quarters than the preceding 12
months combined and also has more than doubled its new bookings
Along the same lines, management expects these multi-year
contract wins to begin to significantly contribute more to the
Company's revenue growth and profitability in the coming
Likewise, it should be noted that customer renewal activity
during the quarter was solid with more than 95 percent of
eligible customers renewing.
Similarly, management remains centered on winning new customers
and driving its backlog and believes it is making excellent
progress with regards to setting the stage for growth and
improved profitability in 2013.
It should further be noted that Commtouch made significant
progress towards its strategic evolution into a cloud-driven
'security as a service' solutions provider.
This cloud based platform provides the Company's clients an
extended range of offerings and addresses new markets which will
allow Commtouch to sell more.
The Company remains on track with the planned rollout of its new
Mobile Security SDK product for Android devices in the current
quarter as well as its next generation cloud-based 'security as a
service' offerings for web and email which are targeted for
release in the first half of 2013.
However, based on the Company's year to date revenues and the
projected influence of the acquisition of FRISK Software
International's Antivirus business, which closed on October 1,
2012, as well as current expectations for the remainder of 2012,
Commtouch updated its current outlook for 2012.
The company lowered its full year guidance to approximately $23
million, which is in line with its 2011 levels.
This compares to previous guidance of between 2% and 6% revenue
growth for its full year 2012 over 2011 heights.
Still, management expects to return to sequential revenue growth
beginning in the current fourth quarter of 2012.
Additionally, Commtouch now expects non-GAAP net income for the
full year 2012 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.
Finally, In May 2012, Commtouch announced the authorized
initiation of a stock repurchase program of the Company's
ordinary shares in the open market, in an amount in cash of up to
The action reflects the confidence of the management team and the
board of directors in the long term growth prospects of the
During the quarter ended September 30, 2012, the Company had
repurchased approximately 297,000 shares at an aggregate cost of
Furthermore, as of September 30, 2012, approximately 495,000
shares have been repurchased through the program at an aggregate
cost of approximately $1.4 million.
COMMTOUCH SOFTW (CTCH): Free Stock Analysis
To read this article on Zacks.com click here.
To access a free copy of the full CTCH research report,