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2/22/2013
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Commtouch Reports Fourth Quarter And Full Year 2012 Results

Full year 2012 revenues totaled $23.9 million, an increase of 4.0% over 2011

Commtouch(R) (NASDAQ: CTCH), a leading provider of Internet security technology and cloud-based services, today announced its fourth quarter and full year 2012 financial results for the period ending December 31, 2012.

Fourth Quarter & Full Year 2012 Financial Highlights:

- Revenues in accordance with US Generally Accepted Accounting Principles

(US GAAP) totaled $6.8 million for the fourth quarter compared to $5.6 million for the

sequential third quarter of 2012 and $6.0 million in the fourth quarter of 2011. Full

year 2012 revenues totaled $23.9 million, an increase of 4.0% as compared to $23.0

million in 2011.

- Non-GAAP revenues totaled $7.0 million for the fourth quarter compared to $5.6

million for the sequential third quarter of 2012 and $6.0 million in the fourth

quarter of 2011. Full year 2012 non-GAAP revenues totaled $24.1 million, an increase

of 5.0% as compared to $23.0 million in 2011. 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.

- In the fourth quarter of 2012, 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. 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. Fourth quarter and

full year 2012 GAAP net income (loss) and earnings per diluted share data include the

impact of the aforementioned acquisition and related costs.

- GAAP net income (loss) for the fourth quarter was ($0.5 million) compared to

net income of $19,000 for the sequential third quarter of 2012 and $1.3 million in the

fourth quarter of 2011. Full year 2012 GAAP net income totaled $1.5 million compared

to $4.6 million in 2011. Fourth quarter and full year 2012 data includes the

aforementioned acquisition related expenses.

- GAAP earnings per diluted share for the fourth quarter were ($0.02), compared

to $0.00 for the sequential third quarter of 2012 and $0.05 in the fourth quarter of

2011. Full year 2012 GAAP earnings per diluted share were $0.06 compared to $0.19 in

2011. Fourth quarter and full year 2012 data includes the aforementioned acquisition

related expenses.

- Non-GAAP net income for the fourth quarter was $0.3 million compared to $0.7

million for the sequential third quarter of 2012 and $1.7 million in the fourth

quarter of 2011. Full year 2012 non-GAAP net income totaled $3.9 million compared to

$6.4 million in 2011 and was marginally lower than anticipated primarily due to an

increased strategic investment in the company's global sales and marketing function to

leverage Commtouch's expanded portfolio of IT security solutions.

- Non-GAAP earnings per diluted share for the fourth quarter were $0.01,

compared to $0.03 for the sequential third quarter of 2012 and $0.07 in the fourth

quarter of 2011. Full year 2012 non-GAAP earnings per diluted share were $0.16

compared to $0.26 in 2011.

- 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.

- Cash as of December 31, 2012 was $5.1 million, compared to $17.3 million as of

September 30, 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.

- Brian Briggs was appointed as Commtouch Chief Financial Officer. Briggs brings

more than 22 years of finance and operations experience, offering extensive expertise

in profitability building in public companies.

Shlomi Yanai, Commtouch's chief executive officer stated, "The fourth quarter culminated 2012 with renewed revenue growth and tremendous progress on our transformation into a provider of comprehensive SecaaS offerings, which was accelerated by our strategic acquisitions. 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. All three solutions were recently launched into the market and have generated great initial customer interest. Our material progress on executing this strategy and deploying our new offerings has successfully set the stage for double-digit revenue growth in 2013.

"On the financial front, fourth quarter and full year sales marked Commtouch's return to top-line growth, while acquisition related transaction and integration expenses, combined with an increased investments in global sales and marketing infrastructure, contributed to lower bottom-line profitability. New bookings growth remained strong in the fourth quarter and full year, doubling new bookings compared to the levels seen in the year ago period. Organic new bookings growth, combined with the synergies of our late 2012 strategic acquisitions, put Commtouch on track to realize full year 2013 revenue growth in the range of 42% to 46% over 2012. We remain committed to investing in our enhanced sales and marketing platform to fully leverage the value of our innovative new SecaaS offerings among customers and partners worldwide, all while continuing to fund our growth through internal cash flow generation and with a focused commitment to improving bottom line profitability.

"Building on Commtouch's progress in 2012, we are focused on increasing our market share in the fast growing markets for cloud-based email, Web and antivirus solutions, including the launch of our new cloud-based web security solution which is currently on track for release in third quarter of 2013. Our solutions are aimed at helping our customers quickly and easily add cloud-based offerings under their own private label brand, allowing them to maximize performance, generate new revenue streams, reduce product launch times and greatly lower their costs. Based on the strength of our expanded portfolio of cloud-based IT security solutions as well as the integration and streamlining of our recent acquisitions, we are setting a solid foundation for growth in 2013 and beyond," concluded Mr. Yanai.

Announced in May of 2012, Commtouch's Board of Directors authorized the 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. During the fourth quarter Commtouch repurchased 105,000 shares at an aggregate cost of approximately $0.3 million. As of December 31, 2012, approximately 767,000 shares have been repurchased through the program at an aggregate cost of approximately $1.7 million.

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:

- Commtouch closed the previously announced acquisition of FRISK Software

International's antivirus business, accelerating the deployment of an expanded range

of OEM and service provider antivirus solutions, including private label solutions.

- Commtouch announced and closed the acquisition of eleven GmbH, which has

captured more than 36% of the Germany's market for managed email security.

eleven GmbH is currently Germany's leading provider of email based

Security-as-a-Service (SecaaS) providing advanced email solutions and services to some

of the largest organizations in Germany, such as BMW, SAP, Siemens and Deutsche

Telekom / T-Online. The acquisition of eleven has enabled Commtouch to accelerate to

early 2013 the launch of private label cloud-based security solutions designed for OEM

and service provider markets, as well as extend Commtouch's global sales and marketing

reach across Europe and beyond.

- Significant investment in expanding the Company's global sales and marketing

capabilities delivered sharply higher new booking activity during the fourth quarter.

As a result, overall new booking activity for the full fiscal 2012 year was

approximately double the level in 2011 setting a solid foundation for future growth.

In line with Commtouch's long-term agreement model, the majority of contracts signed

average approximately three years in length. Revenue recognition for these new

multi-year contracts is expected to begin ramping up and positively impacting

Commtouch's top-line in the coming quarters.

- Key new client wins during the quarter reflected our enhanced international

sales and marketing penetration, including:

- Openwave Messaging Inc., the leading global provider of innovative

messaging software solutions, selected Commtouch as its preferred messaging

security partner for integrating Commtouch's anti-spam and virus outbreak

detection into its messaging platform for carriers and service providers.

- i7 Networks integrated Commtouch's GlobalView(TM) URL categorization

technology into its i7 solutions. India based i7 offers its corporate clients a

suite of products that help manage Web content classification and bandwidth

monitoring, including URL filtering based on the best of breed URL content

categorization databases.

- NSFOCUS Information Technology Co., Ltd, a China based global leader in

providing enterprise-level network security solutions and services, selected

Commtouch's antivirus and URL filtering solutions.

Business Outlook

Based on the current expectations, the company is announcing its financial outlook for the full year 2013. The company anticipates full year 2013 revenue will be between $34.0 million and $35.0 million, an increase of approximately 42% to 46% compared with full year 2012. 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. Full year 2013 GAAP net income is expected to be greater than $2.0 million and non-GAAP net income is expected to be greater than $3.5 million.

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.

The company plans to continue to strategically invest in the build-out of its global sales and marketing efforts. The impact of these investments is reflected in the full year 2013 GAAP net income guidance.

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 and impairment of acquired intangible assets, deferred taxes, acquisition related costs and adjustments to earnout 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, February 20, 2013 at

10:00 a.m. ET to review the fourth quarter and full year 2012 highlights, as well as walk through a strategic overview of the evolution of the company's growth strategy.

To participate, please call one of the following teleconferencing numbers by dialing in at least ten 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: 1-877-407-9210

Israel Dial-in Number: 00-800-4626-6666

International Dial-in Number: 1-201-689-8049

at:

10:00 a.m. Eastern Time, 7:00 a.m. Pacific Time, 3:00 p.m. UK Time, 5:00

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 webcast replay of the call will be available from the day after the call in the investor relations section of Commtouch's corporate Web site.

About Commtouch

Commtouch(R) (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 six 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.

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