Commtouch Rolls Along

Commtouch Rolls Along

Ken Nagy, CFA

On November 2, 2011, Commtouch Software Ltd. (CTCH - Analyst Report), a cloud-based Internet security provider, reported financial results for its third quarter and nine months ended September 30, 2011.

Commtouch reported mixed results with year over year third quarter revenues increasing $1.254 million or 27.3 percent to $5.855 million from $4.601 million for the comparable quarter of 2010. Third quarter 2011 GAAP net income dropped 16.1 percent or $170,000 to $887,000 from $1.057 million during the three months ended September 30, 2010.
The decrease was primarily due to slightly lower gross margin as well as a $711,000 year over year increase in total operating expense and an income tax provision of $275,000 in the third quarter of 2011 compared to an income tax benefit of $128,000 for the comparable quarter of 2010.

Still, non-GAAP net income for the third quarter of 2011 increased year over year by 13.1% to $1.773 million and non-GAAP earnings per diluted share for the third quarter of 2011 were $0.07 compared to $0.06 for the three months ended September 30, 2010.

Gross margin decreased moderately year over year from 84.4 percent to 82.6 percent for the three months ended September 30, 2011.

This marked the Company’s third consecutive quarter of increasing operating margin as a result of increased revenue growth, execution of efficiency and improved synergies from acquisitions.

Based on a weighted average number of diluted common shares of 24.726 million, GAAP basic net income per share resulted in $0.04 per share.  This compared to diluted net income per share of $0.04 on a weighted average number of diluted shares of 24.581 million during the three months ended September 30, 2010.


Commtouch’s balance sheet continued to improve with cash and equivalents increasing by $4.214 million since the beginning of the year to $17.646 million and working capital improving by $1.487 million to $15.080 million for the period ended September 30, 2011.

Although results for the three months were mixed, Commtouch saw growing demand for its products, including the signing of a new agreement with a global communications leader, as well as increasing contracts with existing customers.

Additionally, management reaffirmed its guidance for its fiscal 2011 full year results and continues to expect revenues and net income to be in the mid-range of its previously provided guidance of 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.

It should also be noted that in October, 2011, Mr. Shlomi Yanai was appointed as the Company’s chief executive officer.

Mr. Yanai was previously the vice president of corporate development strategy at SafeNet, were he led strategic decisions regarding product and solution partnerships, as well as mergers and acquisitions.

Moreover, Mr. Yanai expects to further develop untapped potential and leverage the Company’s strong key assets which include its top tier customer base in cloud technology, its strong market traction in the  internet security space and its top quality global team.

To view our most recent research reports and subscribe to our daily morning email alert, visit http://scr.zacks.com/. Please email scr@zacks.com with CTCH as the subject to request a copy of the full research report.

Follow Zacks Small Cap Research on Twitter at Twitter.com/ZacksSmallCap

Read the full analyst report on CTCH