Commtouch Reports Second Quarter 2013 Results

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.

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Second Quarter 2013 Financial Highlights:

• Revenues 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.
• Non-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.
• GAAP 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.   
• GAAP 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.
• Non-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. 
• Non-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.
• Cash generated by operating activities during the quarter was $1.5 million.
• Cash 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:

• During 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.
• The company secured its first win for the recently launched Mobile Security for Android solution with a key European partner. 
• Commtouch 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.
• Commtouch 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.
• Commtouch remains on track with the research and development of a new APT service toward the end of 2013.
• In 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.

• Blog: http://blog.commtouch.com/cafe
• Facebook: http://www.facebook.com/commtouch
• LinkedIn: http://www.linkedin.com/company/commtouch
• Twitter: @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 for our newer product 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.

SOURCE Commtouch

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