CYRN CYREN Ltd

Commtouch Poised for Growth in Mobile Security

Ken Nagy, CFA

On February 14, 2012, Commtouch Software Ltd. (CTCH), a cloud-based Internet security provider, reported financial results for its fourth quarter and fiscal year ended December 31, 2011.

Commtouch reported mixed results with year over year fourth quarter revenues increasing $570,000 or 10.7 percent to $5.950 million from $5.377 million for the comparable quarter of 2010. Still, the Company’s fourth quarter 2011 GAAP net income dropped 23.5 percent or $392,000 to $1.275 million from $1.667 million during the three months ended December 31, 2010.  The decrease in GAAP net income was primarily due to lower gross margin as well as a $917,000 year over year increase in total operating expenses.

Gross margin decreased year over year from 83.2 percent to 81.1 percent for the three months ended December 31, 2011. The lower gross margin was due to the current product mix containing a larger blend of lower margin products.  Still, the Company expects its gross margin to continue to be in the range of 80 and 83 percent in the future.

Based on a weighted average number of diluted common shares of 24.828 million, GAAP diluted net income per share resulted in $0.05 per share for the fourth quarter fiscal 2011.  This compares to diluted net income per share of $0.07 on a weighted average number of diluted shares of 24.767 million during the three months ended December 31, 2010.

Non-GAAP net income for the fourth quarter of 2011 increased year over year by 15.6 percent to $1.653 million and non-GAAP earnings per diluted share for the fourth quarter of 2011 were $0.07 compared to $0.06 for the three months ended December 31, 2010.

Furthermore, net cash provided by operations for the fourth quarter fiscal 2011 improved year over year to $2.226 million from $802,000 for the fourth quarter ended December 31, 2010.

For the twelve months ended December 31, 2011, year over year revenues improved by 26.7 percent or $4.855 million to $23.016 million from $18.161 million for the comparable twelve months of 2010.

GAAP net income for fiscal 2011 improved by $195,000 or 4.4 percent year over year to $4.598 million for the full year ended December 31, 2011. This compares to $4.403 million for the comparable twelve months of 2010.

Still, gross margin for the twelve months decreased to 82.2 percent compared to gross margin of 83.9 percent for the twelve months ended December 31, 2010.

Here again, the lower gross margin was due to the current product mix containing a larger blend of lower margin products.  Once more, the Company expects its gross margin to continue to be in the range of 80 and 83 percent in the future.

On a non-GAAP basis, net income for the full year ended December 31, 2011 increased year over year by 18.1 percent to $6.383 million while non-GAAP earnings per diluted share for fiscal 2011 were $0.19 compared to $0.18 for the twelve months ended December 31, 2010.

Commtouch’s balance sheet continued to improve with cash and equivalents increasing by $7.436 million year over year to $20.868 million and working capital improving by $3.748 million to $17.341 million for the period ended December 31, 2011.

Similalry, the Company generated $6.7 million of operating cash flow for fiscal 2011 compared to operating cash flow of $4.3 million in 2010.

Commtouch expects this improved financial strength to enable the Company to continually invest in the long term growth of its business by pursuing further business opportunities, both internally and in the market place.

Additionally, the improvement further permits Commtouch to expand and accelerate future plans.

Correspondingly, Commtouch saw growing demand for its products over the past fiscal year, including the signing of new agreements with Cox, Hostway, Superb Internet and one of the top three European hosting providers.

Likewise, the Company launched a number of new products during 2011 including version eight of Commtouch's technology, a new URL filtering solution for mobile as well as the industry's first unified engine combining email security, Web filtering and antivirus.

What’s more, management plans to further enhance its mobile solutions offering in fiscal 2012.

Last, by taking advantage of its technological and operational assets, the Company expects to maintain a double digit revenue growth rate and further accelerate it in the future.

To view a free copy of our most recent research report on CTCH or subscribe to our daily morning email alert, visit http://scr.zacks.com/.
 

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