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Commtouch Reports Financial Results for Fourth Quarter and Fiscal Year 2006

 

Record Annual Revenue Growth of 84%

MOUNTAIN VIEW, Calif. – February 14, 2007 – Commtouch® (NASDAQ: CTCH), the leading OEM provider of real time anti-spam, Zero-Hour™ virus protection and IP Reputation technology, today announced its fourth quarter and full year results for the period ending December 31, 2006.

Highlights for the Fourth Quarter and Full Year 2006:

  • Revenues for the fourth quarter of 2006 increased by 75% to $2,197 thousand compared to $1,257 thousand in the fourth quarter of 2005.
  • Revenues for fiscal year 2006 increased by 84% to $7,234 thousand compared to $3,925 thousand in fiscal year 2005.
  • Net Income in accordance with Generally Accepted Accounting Principles (GAAP) for the fourth quarter of 2006 was $153 thousand compared to a loss of $469 thousand in the fourth quarter of last year.
  • Loss on a GAAP basis in fiscal year 2006 was $190 thousand compared to loss of $4,441 thousand in fiscal year 2005.
  • Non-GAAP net income for the fourth quarter of 2006, excluding $295 thousand of stock-based compensation expenses in connection with the company's adoption of Financial Accounting Standards No. 123R, was $448 thousand compared to a loss of $469 thousand in the same quarter of 2005.
  • Non-GAAP net income for fiscal year 2006, excluding stock based compensation expenses of $790 thousand, was $600 thousand compared to a loss of $2,690 thousand in fiscal year 2005 (Refer to the “Use of Non-GAAP Measures” section and accompanying financial table for reconciliation of GAAP financial information to Non-GAAP).
  • Deferred Revenues (long term and short term) as of December 31, 2006 increased by 34% to $2,574 thousand, compared to deferred revenues of $1,919 thousand as of December 31, 2005.
  • Cash and marketable securities as of December 31, 2006 amounted to $10,004 thousand compared to $6,486 thousand as of December 31, 2005. The increase is due to increased operating activities and receipt of proceeds from warrant and option exercises in the amount of $2,537 thousand.
  • The company signed 8 OEM licensing agreements during the fourth quarter of 2006, bringing the company’s global OEM partner count to 57 at the end of year 2006.

“This was a very strong year and quarter, definitely a key year in terms of laying the foundation for strong future growth,” commented Commtouch’s CEO, Gideon Mantel. “Based on current market trends -- mainly the increase in both spam and virus attacks, coupled with the strong customer base we built in 2006 -- we are very confident in our ability to generate new business that will help fuel our continued revenue growth and profitability.”

Future Business Outlook

Based on current business activities and general economic conditions, Commtouch's management believes that 2007 revenues will be in the range of $11.2 million to $12.5 million. The company aims to continue to increase profit margins in fiscal year 2007, achieving overall annual non-GAAP earning per share in the range of 3 to 4 cents per diluted share.
Based on the Company’s past experience, quarterly growth rates will likely fluctuate from quarter to quarter based on seasonality and specific customer launch dates. The above outlook is as of today and the company undertakes no obligation to update its estimates in the future. 

Commtouch’s non-GAAP net income differs from results reported under U.S. GAAP due to non-cash items; since it is too early to determine the impact of stock-based compensation expense for the rest of the year; Commtouch is not providing guidance on GAAP net income. The stock-based compensation expense would have a negative impact on net income.

Use of Non-GAAP Measures

This press release includes financial measures for net income (loss), basic and diluted earnings per share that exclude stock-based compensation expense and are therefore not calculated in accordance with generally accepted accounting principles (GAAP). Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance that enhances management's and investors' ability to evaluate the company's net income or loss and earnings or loss per share and to compare it with historical net income or loss and earnings or loss per share, including for the period prior to the adoption of FAS 123R by the company effective January 1, 2006.

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.

Commtouch Conference Call
The company has scheduled a conference call on Wednesday, February 14, 2007, at 11 a.m. EST.

To participate in the call, U.S. callers can dial 1-888-668-9141; UK Dial-in Number: 0-800-917-9141; ISRAEL Dial-in Number: 03-918-0609; INTERNATIONAL Dial-in Number: +972-3-918-0609 ten minutes prior to the start time.

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: www.commtouch.com.

About Commtouch

Commtouch Software Ltd. (NASDAQ: CTCH) is dedicated to protecting and preserving the integrity of the world's most important communications tool -- e-mail. Commtouch has over 16 years of experience developing messaging software and is a global developer and provider of proprietary anti-spam, Zero-Hour virus protection and IP Reputation solutions. Using core technologies including RPD (Recurrent Pattern Detection™), the Commtouch Detection Center analyzes billions of email messages per month to identify new spam and malware outbreaks within minutes of their introduction into the Internet. Integrated by more than 50 OEM partners, Commtouch technology protects thousands of organizations, with over 50 million users in over 100 countries. Commtouch is headquartered in Netanya, Israel, and has a subsidiary in Mountain View, Calif. For more information, see: www.commtouch.com. The site includes the Commtouch online lab detailing spam statistics and charts.

This press release contains forward-looking statements, including projections about our business, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. For example, statements in the future tense, and statements including words such as "expect," "plan," "estimate," "anticipate," or "believe" are forward-looking statements. These statements are based on information available to us at the time of the release; we assume no obligation to update any of them. The statements in this release are not guarantees of future performance and actual results could differ materially from our current expectations as a result of numerous factors, including business conditions and growth or deterioration in the Internet market, commerce and the general economy, both domestic as well as international; fewer than expected new-partner relationships; competitive factors, including pricing pressures; technological developments, and products offered by competitors; the ability of our OEM partners to successfully penetrate markets with products integrated with Commtouch technology; a slower than expected acceptance rate for our newer product offerings; availability of qualified staff for expansion; and technological difficulties and resource constraints encountered in developing new products, as well as those risks described in the text of this press release and the company's Annual Reports on Form 20-F and reports on Form 6-K, which are available through www.sec.gov.

Recurrent Pattern Detection, RPD and Zero-Hour are trademarks, and Commtouch is a registered trademark, of Commtouch Software Ltd. U.S. Patent No. 6,330,590 is owned by Commtouch. 

                       COMMTOUCH SOFTWARE LTD.

                CONDENSED CONSOLIDATED BALANCE SHEETS


                                                        December 31
                                                      ----------------
                                                       2006     2005
                                                      -------- -------

                                                      In US$ thousands
                  Assets:
     Current Assets:
 Cash and cash equivalents                             $8,004  $3,986
 Marketable Securities                                  2,000   2,500
 Trade receivables                                        570     355
 Prepaid expenses and other accounts receivable           196     168
                                                      -------- -------
                 Total current assets                  10,770   7,009
                                                      -------- -------

 Long-term lease deposits                                  13      18
 Equity investment in Imatrix                               -      48
 Severance pay fund                                       607     547
 Property and equipment, net                              609     373
                                                      -------- -------
                     Total assets                      11,999   7,995
                                                      ======== =======


         Liabilities and Shareholders' Equity
     Current Liabilities:
  Accounts payable                                        344     321
 Employees and payroll accruals                           503     617
 Accrued expenses and other liabilities                   379     301
 Short-term deferred revenue                            2,032   1,533
                                                      -------- -------
               Total current liabilities                3,258   2,772
                                                      -------- -------

 Long-term deferred revenue                               542     386
 Accrued severance pay                                    706     638
                                                      -------- -------
                  Total liabilities                     1,248   1,024
                                                      -------- -------

 Shareholders' equity                                   7,493   4,199
                                                      -------- -------
      Total liabilities and shareholders' equity      $11,999  $7,995
                                                      ======== =======
                       COMMTOUCH SOFTWARE LTD.

           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

             (In US$ thousands, except per share amounts)


                                     Year ended    Three months ended
                                    December 31        December 31
                                   2006    2005      2006      2005
                                  ------- -------- --------- ---------
                                                   Unaudited Unaudited

  Revenues                        $7,234   $3,925    $2,197    $1,257

  Cost of revenues                   901      700       255       181
                                  ------- -------- --------- ---------
 Gross profit                      6,333    3,225     1,942     1,076
                                  ------- -------- --------- ---------
 Operating expenses:
  Research and development         1,763    1,524       512       417
  Sales and marketing              2,686    2,476       727       602
  General and administrative       2,299    1,881       632       540
                                  ------- -------- --------- ---------
  Total operating expenses         6,748    5,881     1,871     1,559

                                  ------- -------- --------- ---------
 Operating profit (loss)            (415)  (2,656)       71      (483)
  Interest and other expense, net    274      141        82        47
  Equity - loss of affiliate         (49)    (175)                (33)
                                  ------- -------- --------- ---------
  Net income (loss)                 (190)  (2,690)      153      (469)
  Amortization of beneficial
   conversion feature relating to
   convertible Series A Preferred
   Shares                              -   (1,751)        -         -
 Net income (loss) attributable to
  ordinary and equivalently
  participating shareholders       ($190) ($4,441)     $153     ($469)
                                  ======= ======== ========= =========


 Earning (loss) per share-basic
  and diluted                     ($0.00)  ($0.09)    $0.00    ($0.01)
                                  ======= ======== ========= =========

 Weighted average number of shares
  outstanding:
 Basic                            66,339   47,406    71,428    53,148
                                  ======= ======== ========= =========

 Diluted                          66,339   47,406    76,249    53,148
                                  ======= ======== ========= =========
             Supplementary Financial Information

 Unaudited Reconciliation of GAAP Financial Information to
                           NON-GAAP

                     (In US$ thousands)


                           Year ended               Year ended
                           December 31              December 31
                     ----------------------- -------------------------

                                                      (a)Non
                             FAS123R  Non              -GAAP
                      GAAP   Adjust-   GAAP    GAAP   Adjust- Non GAAP
                      2006    ments   2006     2005    ments    2005
                     ------- ------- ------- -------- ------- --------


 Revenues            $7,234          $7,234   $3,925           $3,925

 Cost of revenues       901      15     886      700              700
                     ------- ------- ------- --------         --------
Gross profit          6,333     (15)  6,348    3,225            3,225
                     ------- ------- ------- --------         --------
Operating expenses:
 Research and
  development         1,763     196   1,567    1,524            1,524
 Sales and marketing  2,686      96   2,590    2,476            2,476
 General and admini-
 strative             2,299     483   1,816    1,881            1,881
                     ------- ------- ------- --------         --------
 Total operating
  expenses            6,748     775   5,973    5,881            5,881

                     -------         ------- --------         --------
Operating profit
 (loss)                (415)            375   (2,656)          (2,656)
 Interest and other
  expense, net          274             274      141              141
 Equity - loss of
  affiliate             (49)            (49)    (175)            (175)
                     -------         ------- --------         --------
 Net income (loss)     (190)            600   (2,690)          (2,690)
 Amortization of
  beneficial
  conversion feature
  relating to
  convertible Series
  A Preferred Shares      -               -   (1,751) (1,751)       -
Net income (loss)
 attributable to
 ordinary and
 equivalently
 participating
 shareholders         ($190)           $600  ($4,441)         ($2,690)
                     =======         ======= ========         ========

(a) Amortization of beneficial conversion feature relating to
 convertible Series A Preferred Shares
                 Supplementary Financial Information

  Unaudited Reconciliation of GAAP Financial Information to NON-GAAP

                          (In US$ thousands)


                                       Three months ended
                                           December 31
                           -------------------------------------------

                                                        Non
                               GAAP         FAS123R      GAAP   GAAP
                               2006       Adjustments   2006    2005
                           ------------- ------------- ------- -------


  Revenues                       $2,197                $2,197  $1,257

  Cost of revenues                  255             6     249     181
                           ------------- ------------- ------- -------
 Gross profit                     1,942            (6)  1,948   1,076
                           ------------- ------------- ------- -------
 Operating expenses:
  Research and development          512            73     439     417
  Sales and marketing               727            36     691     602
  General and
   administrative                   632           180     452     540
                           ------------- ------------- ------- -------
  Total operating expenses        1,871           289   1,582   1,559

                           -------------               ------- -------
 Operating profit (loss)             71                   366    (483)
  Interest and other
   expense, net                      82                    82      47
  Equity - loss of
   affiliate                          -                     -     (33)
                           -------------               ------- -------
  Net income (loss)                $153                  $448   ($469)
                           =============               ======= =======


 

Investor Relations:

IR@commtouch.com  
US: 650-864-2291
Int’l: +972-9-863-6813

Media:

Rebecca Steinberg Herson
rebeccah@commtouch.com
US: 650-864-2112
Int’l: +972-9-863-6877