(CTCH) Commtouch Software Mobile Phones Hold Promise

Ken Nagy, CFA

For Commtouch Mobile Holds Promise

On August 3, 2011, the cloud-based Internet security provider, Commtouch Software Ltd., (CTCH) reported financial results for its fiscal 2011 second quarter, ended June 30, 2011.

A solid second quarter performance resulted in a 39 percent year over year increase in revenue, with revenue expanding to $5.696 million from $4.104 million for the three months ended June 30, 2010.

U.S. GAAP (Generally Accepted Account Principles) net income proved stronger, growing $530,000 or 60 percent year over year to $1.415 million. This compares to net income of $885,000 for the second quarter of 2010.

While year over year gross margin fell slightly, the increase in net income was primarily the product of increased revenue and a tax benefit of $401,000 in the 2011 second quarter compared to an income tax outlay of $97,000 in the three months ended June 30 2010.

Gross margin fell from 84.11% in the second quarter of 2010, to 83.53% for the three months ended June 30, 2011.  Still, operating cash flow for the 2011 second quarter increased $0.7 million year over year to $1.9 million and cash and equivalents, as of June 30, 2011, increased $1.7 million sequentially to $16.1 million from the $14.4 million as of March 31, 2012.

The fiscal 2011 second quarter also proved promising for the Company with the addition of several new consumer focused customers.This includes a new customer in the desktop and mobile security antivirus market that selected Commtouch’s messaging security and web security solutions as well as a new customer in the end point security market that leveraged the Company’s messaging security and anti-virus solutions. Similarly, the Company leveraged its customer base through expanded contracts with existing customers.

These cross sales through its Command Antivirus products and its newly launched GlobalView URL Filtering for Mobile products helped the Company increase its average revenue per customer and was a significant driver of organic growth.

The Company’s GlobalView URL Filtering for Mobile products solution is the industry’s first engine for the deployment of the secure web browsing, parental control and compliance applications for Android devices such as smart phones and tablets and is designed to provide real-time protection to end-users while browsing the web from mobile devices.

With substantial increases in mobile vulnerabilities, the mobile security client software market is expected to advance at a CAGR (Compound Annual Growth Rate) of 40 percent from 2010 to 2015.

Correspondingly, the Company continues to build on strategic assets by broadening the use of its cloud security platform and expanding into the mobile space.

Along the same lines, Commtouch expects to expand its solutions to other leading mobile operating systems besides the Android as well as expand its mobile offerings for other products besides URL filtering.

Looking forward, management reaffirmed its previously provided 2011 full year results, expecting revenues to be between $22.5 million and $23.5 million, a nearly a 27 percent year over year increase from 2010 revenues at the midpoint of the range

Net income for 2011 is anticipated to be between $6.2 million and $6.7 million on a non-GAAP basis, which would represent a 19 percent year over year increase from the Company’s 2010 non-GAAP basis net income at the midpoint of the range.
For a free copy of the full research report, please email [email protected] with CTCH as the subject.

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