Commtouch to Transition from Tech firm to Service Provider - Analyst Blog

Commtouch to Transition from Tech firm to Service Provider

Ken Nagy, CFA

On May 2, 2012, Commtouch Software Ltd. (CTCH), a cloud-based Internet security provider, reported financial results for its first quarter ended March 31, 2012.

Commtouch reported solid results with year over year first quarter revenues increasing $381,000 or nearly 7 percent to a record first quarter revenue amount of $5.896 million from $5.515 million for the comparable quarter of 2011.

First quarter 2012 GAAP net income jumped 18.4 percent or $188,000 to $1.209 million from $1.021 million during the three months ended March 31, 2011.

The improvement was primarily due to slightly higher revenues as well as improved gross margin during the quarter.

Gross margin improved by 50 basis points year over year to 82.2 percent from 81.7 percent for the three months ended March 31, 2011.

Based on a weighted average number of diluted common shares of 24.889 million, GAAP diluted net income per share resulted in $0.05 per share for the first quarter fiscal 2012.  This compares to diluted net income per share of $0.04 on a weighted average number of diluted shares of 24.752 million during the three months ended March 31, 2011.

Non-GAAP net income for the first quarter of 2012 increased year over year by 14.4 percent to $1.586 million and non-GAAP earnings per diluted share for the first quarter of 2011 were stable at $0.06 compared to $0.06 for the three months ended March 31, 2011.

Commtouch’s balance sheet continued to improve with cash and equivalents increasing by $1.170 million year over year to $22.038 million and working capital improving by $1.858 million year over year to $19.199 million for the period ended March 31, 2012.

Also, operating cash flow for the first quarter fiscal 2012 improved year over year to $1.2 million from $1.1 million for the first quarter ended March 31, 2011.

Commtouch expects the improved financial strength to enable the Company to continually invest in the long term growth of its business by pursuing further business opportunities, both internally and in the market place.

Similarly, it should be noted that management stated that the Company has been re-defining its long-term strategy and vision to take the business to the next level.

The recent appointment of Mickey Avram as VP of Sales Operations, Brett Wilson as VP of Products and Haniel Ilouz as VP of Global Engineering, reflect initial steps Commtouch is taking in regards to the new strategy.

What’s more, the updated vision includes Commtouch’s evolution from a technology company into a solutions provider of white label cloud-driven 'security as a service' offerings.

Likewise, management intends to continue to grow its core business as well as make material investments in the coming year that are aimed at developing and deploying complementary value added solutions to set the stage for accelerated long-term growth.

Last, Company reaffirmed that it expects its full year 2012 revenue to grow by a double-digit percentage rate over full year 2011 levels.

Furthermore, Commtouch anticipates non-GAAP net income for full year 2012 to be at, or above, $5.0 million as a result of the higher levels of investment the Company is making in the areas of research and development, sales, and marketing to support the development and deployment of Commtouch's next generation solutions.
 

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