Commtouch Sets the Stage for Renewed Growth - Analyst Blog
Commtouch Sets the Stage for Renewed Growth
Ken Nagy, CFA
On August 1, 2012, C ommtouch Software Ltd. (CTCH), a cloud-based Internet security provider, reported financial results for its second quarter and six months ended June 30, 2012.Commtouch reported mixed second quarter financial results with year over year revenues in line with second quarter 2011 sales.
Second quarter 2012 revenues amounted to $5.671 million compared to $5.696 million for the comparable quarter of 2011.
Still, second quarter 2012 GAAP net income fell $611,000 to $804,000 million from $1.415 million during the three months ended June 30, 2011. The drop was primarily due to lower gross margin and an increase in total operating expenses during the quarter.
Gross margin fell year over year to 82.1 percent from 83.5 percent for the three months ended June 30, 2011 while total operating expenses increased year over year by $337,000, which equates to 71.2 percent of revenues versus 64.9 percent during the second quarter of 2011.
Based on a weighted average number of diluted common shares of 25.291 million, GAAP diluted net income per share resulted in $0.03 per share for the second quarter fiscal 2012. This compares to diluted net income per share of $0.06 on a weighted average number of diluted shares of 24.554 million during the three months ended June 30, 2011.
Non-GAAP net income for the second quarter of 2012 fell year over year by $262,000 to $1.309 million and non-GAAP earnings per diluted share for the second quarter of 2011 were down slightly at $0.05 compared to $0.06 for the three months ended June 30, 2011.
For the six months ended June 30, 2012, year over year revenues improved by $356,000 to $11.567 million from $11.211 million for the first half of fiscal 2011.
Still, GAAP net income for the six months fell by $423,000 year over year to $2.013 million for the six months ended June 30, 2012. This compares to $2.436 million for the comparable six months ended June 30, 2011.
Here again, the year over year drop in net income was a primarily a result of slightly lower gross margin and increased total operating expenses.
Gross margin for the six months fell to 82.1 percent compared to gross margin of 82.6 percent for the six months ended June 30, 2011 while total operating expenses increased year over year by $549,000, which equates to 67.3 percent of revenues versus 64.5 percent during the first half of 2011.
Based on a weighted average number of diluted shares of 25.054 million shares, diluted net income per share resulted in net income of $0.08 per diluted share during the first six months of fiscal 2012. This compared to a diluted net income per share of $0.10 on a weighted average number of diluted shares of 24.653 million shares during the six months ended June 30, 2011.
On a non-GAAP basis, net income for the first six months of 2012 dropped year over year by $62,000 to $2.895 million and non-GAAP earnings per diluted share for the first six months of 2012 was steady at $0.12 compared to $0.12 for the six months ended June 30, 2011.
Commtouch's balance sheet continued to remain strong.
Although cash and equivalents dropped sequentially by $2.215 million to $19.823 million, working capital improved sequentially by $969,000 to $20.168 million for the period ended June 30, 2012. This compares to cash and equivalents of $22.038 million and working capital of $19.199 million for the first quarter 2012.
Additionally, operating cash flow for the second quarter fiscal 2012 was $1.4 million compared to $1.9 million for the second quarter ended June 30, 2011.
Commtouch's global sales and marketing infrastructure have now begun to yield impressive results and have set the stage for renewed revenue growth.
The Company's global sales team delivered its strongest quarter of new business wins in more than two years with new multi-year contracts consisting of both new customers as well as up sell contracts with current Commtouch customers.
The combined value of these second quarter contract signings is forecasted to represent approximately 5% annual revenue growth based on full year 2011 revenues and are expected to begin coming online and ramp and start to positively impacting Company revenues in the second half of 2012 and 2013.
Similarly, Commtouch's reported that its launch of new offerings continues to be on track, including enhanced mobile antivirus support, a new advanced persistent threat offering later this year, and its next generation cloud-based 'security as a service' offerings targeted for rollout in early 2013.
However, based on the Company's first half revenues and the anticipated ramp of recent contract wins, the company lowered its full year guidance to increase between 2% and 6% over full year 2011 levels. This compares to previous guidance of double digit revenue growth for its full year 2012 over 2011 heights.
Still, management continues to focus on internal cost efficiency measures while simultaneously executing on its previously announced strategy of making a higher level of investment in the areas of research and development, sales, and marketing to support the development and deployment of its next generation solutions.
As a result, Commtouch continues to expect non-GAAP net income for the full year 2012 to be at, or above its previous guidance, $5.0 million.
Still, it should be noted that this business outlook includes a minimal contribution from the pending acquisition of the antivirus business of FRISK.
This morning, Commtouch also announced it has signed a definitive agreement to acquire Iceland-based FRISK Software International's antivirus business. The acquisition will allow Commtouch to utilize FRISK's staff and IP to dramatically accelerate its launch of white label antivirus solutions for the OEM market as well as provide more services and applications.
The acquisition is currently anticipated to close in the third quarter of 2012.
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 $2.5 million.
As of June 30, 2012, The Company had repurchased approximately 198,000 shares at an aggregate cost of approximately $0.6 million.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.