CYRN CYREN Ltd

Commtouch Sees 2013 Top-line Growth growing 42-46%!

By Ken Nagy, CFA

On February 20, 2013, Commtouch Software Ltd. (NasdaqCM:CTCH), the Netanya, Israel based provider of internet security and cloud based services, supplying white label internet cloud-based (SaaS) ‘Security as a Service’ protection solutions to security OEM’s and service providers worldwide, reported financial results for its fourth quarter and full year ended December 31, 2012.

Commtouch reported solid progress with new booking sales for the fourth quarter and full year fiscal 2012 more than doubling year over year, while acquisition related transaction and integration expenses, combined with increased investments in global sales and marketing infrastructure, contributed to lower bottom-line profitability.

Fourth quarter 2012 revenues grew by14 percent or $835,000 year over year to $6.785 million compared to $5.950 million for the comparable quarter of 2011.

Still, the Company reported a GAAP net loss of $547,000 for the quarter, down from net income of $1.275 million during the three months ended December 31, 2011.

The drop was primarily due to the impact of acquisition related costs expenses as well as lower gross margins.

It should be noted that during the fourth quarter, Commtouch closed the previously announced acquisitions of FRISK Software International's antivirus business as of October 1, 2012 and eleven GmbH as of November 16, 2012.

Similarly, during the fourth quarter and full year, the Company recognized expenses totaling approximately $0.4 million and $0.8 million in the respective periods related to acquisition related costs.

Gross margin during the quarter fell year over year to 79.9 percent from 81.1 percent for the three months ended December 31, 2011.

Based on a weighted average number of diluted common shares of 25.598 million, GAAP diluted net loss per share resulted in $0.02 loss per share for the fourth quarter fiscal 2012.  This compares to diluted net income per share of $0.05 on a weighted average number of diluted shares of 24.828 million during the three months ended December 31, 2011.

Non-GAAP net income for the fourth quarter of 2012 fell year over year by $1.384 million to net income of $269,000 while non-GAAP earnings per diluted share for the fourth quarter of 2011 fell to $0.01 compared to $0.07 for the three months ended December 31, 2011.

For the full year ended December 31, 2012, year over year revenues improved by $894,000 to $23.910 million from $23.016 million for the twelve months ended December 31, 2011.

Still, GAAP net income for the twelve months fell year over year to $1.485 million for the full year ended December 31, 2012. This compares to net income of $4.598 million for the comparable twelve months ended December 31, 2011.

The drop in net income was due to the impact of acquisition related costs as well as the 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 launch as well as lower gross margins.

Gross margin for the year fell to 81.8 percent compared to 82.2 percent for fiscal 2011.

Based on a weighted average number of diluted shares of 25.140 million shares, diluted net income per share resulted in net income of $0.06 per diluted share during the full year fiscal 2012.  This compared to a diluted net income per share of $0.19 on a weighted average number of diluted shares of 24.654 million shares during the twelve months ended December 31, 2011.

On a non-GAAP basis, net income for fiscal 2012 dropped year over year by $2.475 million to $3.908 million and non-GAAP earnings per diluted share for the twelve months of 2012 was $0.16 compared to $0.26 for the full year ended December 31, 2011.

Although cash and equivalents dropped to $5.137 million for the period ended December 31, 2012, cash usage during the quarter included the net purchase price payments of $10.2 million, as well as payments for transaction and integration costs associated with the two acquisitions completed during the quarter.

Similarly, cash used for operating cash activities during the quarter was $1.6 million, which included payments for professional service fees and other acquisition related costs associated with the two acquisitions that closed during the quarter.

Still, the Company ended 2012 with renewed revenue growth and tremendous progress on its recent transformation into a provider of comprehensive SecaaS offerings, which was accelerated by its strategic acquisitions and the formal launch of its new cloud-based email Security-as-a-Service offering in early 2013 highlights the Company’s execution on its strategic roadmap and its foundation for future growth.

Commtouch's new Email Security-as-a-Service solution marks a major launch of the Company's latest cloud-based offerings and is complemented by new solutions focused on Email Security On-Premise for Service Providers and Mobile Security Services for Android.

The three recently launched solutions have generated pronounced initial customer interest setting the stage for strong revenue growth in 2013.

Likewise, management anticipates that organic new bookings growth, combined with the synergies of its recent strategic acquisitions, helps puts Commtouch on track to realize double digit year over year full year 2013 revenue growth. 

Along the same lines, management anticipates revenues for the full year 2013 revenue to be in the range of $34.0 million and $35.0 million, which would be a year over year increase of approximately 42 percent to 46 percent when compared with fiscal 2012.

Similarly, full year 2013 GAAP net income is expected to be greater than $2.0 million while non-GAAP net income is anticipated to be greater than $3.5 million.

Still, both GAAP and non-GAAP net income guidance includes a higher level of sales and marketing expense versus 2012 to support a strengthened global sales platform.

Likewise, management plans to continue to strategically invest in the build-out of its global sales and marketing efforts.

It should be noted that during the first half of 2013, the company also expects to recognize extraordinary expenses related to its previously announced acquisitions, as well as related integration and streamlining expenses, totaling approximately $0.8 million, the majority of which will be recognized in the first quarter of 2013. The impact of these charges is reflected in the aforementioned full year 2013 GAAP net income guidance. The company expects the impact of integration and streamlining activities to positively impact the financial performance of the business during the second half of 2013.

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.

The action reflects the confidence of the management team and the board of directors in the long term growth prospects of the Company.

During the quarter ended December 31, 2012, the Company had repurchased 105,000 shares at an aggregate cost of approximately $300,000.

Likewise, as of December 31, 2012, approximately 767,000 shares have been repurchased through the program at an aggregate cost of approximately $1.7 million.

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