Commtouch Reports 27 Percent Increase In Revenue In Third Quarter 2011 Results

PRESS RELEASE

SUNNYVALE, California, November 2, 2011 /PRNewswire/ --

Commtouch(R) (NASDAQ: CTCH), a leading cloud-based Internet security provider, today announced its third quarter 2011 results, ended September 30, 2011.

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Third Quarter 2011 Financial Highlights:

- Revenues for the third quarter of 2011 increased by 27% to $5.9 million compared to $4.6 million in the third quarter of 2010. - Net income in accordance with US Generally Accepted Accounting Principles (US GAAP) for the third quarter of 2011 decreased by 16% to $887 thousand, as compared with $1.1 million in the third quarter of 2010. - GAAP earnings per diluted share for the third quarter of 2011 were $0.04, compared to $0.04 in the third quarter of 2010. - Non-GAAP net income for the third quarter of 2011 increased by 13% to $1.8 million, as compared with non-GAAP net income of $1.6 million for the third quarter of 2010. - Non-GAAP earnings per diluted share for the third quarter of 2011 were $0.07, an increase of 12 percent, compared to $0.06 for the third quarter of 2010. - Deferred Revenues (long-term and short-term) as of September 30, 2011 amounted to $4.1 million compared to $3.5 million in deferred revenues as of June 30, 2011. - Operating cash flow for the third quarter of 2011 was $1.5 million, compared to $1.6 million in the third quarter of 2010. - Cash as of September 30, 2011 amounted to $17.6 million, compared to $16.1 million as of June 30, 2011.

For information regarding the non-GAAP financial measures discussed in this release, please see below "Use of Non-GAAP Measures" and "Reconciliation of Selected GAAP Measures to Non-GAAP Measures."

"I am happy to report another strong quarter with consistent revenue growth and improvement of our operating and net margins that led to higher profitability," said Ron Ela, Commtouch's chief financial officer. "This steady financial growth remains a solid basis from which to implement our future plans."

Third Quarter 2011 Business Highlights:

- The company saw growing demand for its products, including the signing of a new agreement with a global communications leader, which selected Commtouch's antivirus solution for its new mobile venture. - The company continued expanding contracts with existing customers, including a noteworthy deal with one of its leading email security customers that will be implementing Commtouch's GlobalView(TM) URL Filtering across all of its product lines. - The company launched version eight of its email and Web security solution platform, reinforcing its cloud security leadership. The new version includes improvements in performance and in the underlying Commtouch cloud technology, expanded Web security capabilities, enhanced email security offerings, and a new unified engine for email security, Web security and antivirus.

On October 24, the board of directors appointed Shlomi Yanai as chief executive officer of Commtouch. Mr. Yanai brings deep industry expertise and a strong performance track record of several decades in the security market, most recently as an executive at SafeNet.

"I am excited to be joining Commtouch, a company with an impressive set of assets including healthy financials, a strong global customer base, a unique cloud-based security platform, and an exceptional team," Mr. Yanai said. "My goal is to build upon this strong foundation, and steer the company toward capitalizing on the significant market opportunity ahead."

Business Outlook

Management reaffirmed its guidance for 2011 full year results and expects revenues and net income to be in the mid-range of their respective guidance.

The previously provided guidance was: full year 2011 revenues of between $22.5 million and $23.5 million, and net income of between $6.2 million and $6.7 million on a non-GAAP basis.

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: share based compensation expenses, amortization of acquired intangible assets, deferred taxes and acquisition related costs. The purpose of such adjustments is to give an indication of our performance exclusive of non-cash charges and other items that are considered by management to be outside of our core operating results. Our 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 our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our 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. We believe this adjustment is useful to investors as a measure of the ongoing performance of our business. We believe these non-GAAP financial measures provide consistent and comparable measures to help investors understand our 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, November 2, 2011, at 10 a.m. ET.

To participate in the call, please dial one of the following numbers ten minutes prior to the start time of the call:

US Dial-in Number: 1-888-407-2553 Israel Dial-in Number: 03-918-0610 International Dial-in Number: +972-3-918-0610 at: 10 a.m. Eastern Time, 7 a.m. Pacific Time, 2 p.m. UK Time, 4 p.m. Israel Time

The call will be simultaneously webcast live from a link on Commtouch's website at http://www.commtouch.com.

For those unable to listen to the live call, a replay of the call will be available the day after the call in the investor relations section of Commtouch's website, at: http://www.commtouch.com/ir.

About Commtouch

Commtouch(R) (NASDAQ: CTCH) safeguards the world's leading security companies and service providers with cloud-based Internet security services. A cloud-security pioneer, Commtouch's real-time threat intelligence from its GlobalView(TM) Network powers Web security, messaging security and antivirus solutions, protecting thousands of organizations and hundreds of millions of users worldwide. Information about Commtouch can be found at http://www.commtouch.com or by writing to [email protected].