Commtouch Reports Financial Results for the Second Quarter of 2008

Commtouch® (NASDAQ:CTCH), a leading email and web defense technology provider, today announced its second quarter results for the period ending June 30, 2008. Second Quarter 2008 Highlights: Revenues for the second quarter of 2008 increased by 36% to $3,568 thousand compared to $2,617 thousand in the second quarter of 2007. Net income in accordance with US Generally Accepted Accounting Principles (US GAAP) for the second quarter of 2008 was $582 thousand compared to net income of $483 thousand in the second quarter of last year, representing an increase of 20%. GAAP net income for the second quarter of 2008 included $356 thousand of stock-based compensation expenses (FAS123R), compared to $241 thousand of these expenses in the second quarter of 2007. Non-GAAP net income for the second quarter of 2008 was $938 thousand compared to a net income of $724 thousand in the second quarter of 2007, representing an increase of 30%. Deferred Revenues (long-term and short-term) as of June 30, 2008 amounted to $3,005 thousand, a decrease of 13% over deferred revenues as of December 31, 2007. Operating cash flow in the second quarter of 2008 was $591 thousand, compared to $428 thousand in the second quarter of 2007. Cash, short term cash deposits and short and long-term marketable securities as of June 30, 2008 amounted to $16,485 thousand, compared to $14,407 thousand as of December 31, 2007. The increase is due to the above-mentioned positive operating cash flow and the receipt of $802 thousand, representing proceeds from the exercise of warrants and options. The Company signed seven new OEM licensing agreements during the second quarter of 2008. The Company’s global OEM partner count was 100 as of June 30, 2008. Gideon Mantel, chief executive officer and chairman of the board of Commtouch said: "I am pleased that we have been able to achieve such a good quarter of profitability, revenue growth and positive cash flow, despite the overall market environment, the declining US dollar, and our continued investment in a new product line. I am very excited with regard to our outlook, especially as we assess the potential of our Web Security offering, which we expect to release at the end of this year.” Future Business Outlook Based on current business activities and general economic conditions, Commtouch's management reiterates its full year 2008 guidance, issued during the 2007 fourth quarter: 2008 revenues are expected to be in the range of $15 million to $16 million with annual non-GAAP earnings in the range of 16 to 19 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. Traditionally, the second half of the year is seasonally stronger from a revenue standpoint than the first half. 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 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 2008 year, Commtouch is not providing guidance on GAAP net income. Stock-based compensation expense has a negative impact on net income. This press release includes financial measures for net income (loss), basic and diluted earnings per share that exclude stock-based compensation expenses 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. 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, Wednesday, July 30, 2008 at 10 a.m. EST. To participate in the call, please dial one of the following numbers ten minutes prior to the start time of the call: U.S.: 1-888-668-9141; ISRAEL: 03-918-0610; INTERNATIONAL: +972-3-918-0610 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: http://www.commtouch.com/ir. About Commtouch Commtouch® (Nasdaq:CTCH) is the source of proven messaging and web security technology for scores of security companies and service providers, founded on a unique datacenter-based approach. Commtouch’s expertise in building efficient, massive-scale security services has resulted in its patented technology being used to mitigate Internet threats for thousands of organizations and hundreds of millions of users in over 100 countries. Commtouch’s Data Centers automatically analyze billions of transactions in real-time to identify new spam, malware and zombie outbreaks as they are initiated. Commtouch’s unmatched suite of security offerings – anti-spam, virus detection, reputation and zombie intelligence services – work together in a comprehensive feedback loop. Commtouch was founded in 1991, is headquartered in Netanya, Israel, and has a subsidiary in Sunnyvale, Calif. For more information and real-time statistics and trends, see: http://www.commtouch.com and the Commtouch Café blog at http://blog.commtouch.com/cafe. Recurrent Pattern Detection, RPD, Zero-Hour and GlobalView are trademarks, and Commtouch is a registered trademark, of Commtouch Software Ltd. U.S. Patent No. 6,330,590 is owned by Commtouch. 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; 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. COMMTOUCH SOFTWARE LTD.     CONDENSED CONSOLIDATED BALANCE SHEETS     June 30 December 31 2008 2007 Unaudited Audited In US$ thousands   Assets: Current Assets: Cash and cash equivalents $14,295 $10,807 Short term cash deposit $300 $1,600 Marketable securities - 2,000 Trade receivables 1,301 1,110 Prepaid expenses and other accounts receivable 243 303 Total current assets 16,139 15,820   Long-term Marketable securities 1,890 - Long-term lease deposits 62 33 Severance pay fund 743 821 Property and equipment, net 794 786 Investment in affiliate 750 750 Total assets 20,378 18,210     Liabilities and Shareholders’ Equity Current Liabilities: Accounts payable 379 335 Employees and payroll accruals 840 746 Accrued expenses and other liabilities 358 415 Short-term deferred revenue 2,309 2,534 Total current liabilities 3,886 4,030   Long-term deferred revenue 696 901 Accrued severance pay 859 931 Total liabilities 1,555 1,832   Shareholders’ equity 14,937 12,348 Total liabilities and shareholders’ equity $20,378 $18,210   COMMTOUCH SOFTWARE LTD.         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In US$ thousands, except per share amounts)     Three months ended Six months ended June 30 June 30 2008 2007 2008 2007 Unaudited Unaudited Unaudited Unaudited   Revenues $3,568 $2,617 $6,969 $5,022   Cost of revenues 459 346 908 632   Gross profit 3,109 2,271 6,061 4,390     Operating expenses:   Research and development 792 539 1,573 995   Sales and marketing 967 810 1,982 1,636   General and administrative 839 627 1,708 1,288   Total operating expenses 2,598 1,976 5,263 3,919         Operating profit 511 295 798 471   Interest and other expense, net 71 188 191 279   Income before taxes 582 483 989 750   Taxes on income - - 7 -   Net income attributable to ordinary and equivalently participating shareholders $582 $483 $982 $750       Earning per share- basic $0.02 $0.02 $0.04 $0.03   Earning per share- diluted $0.02 $0.02 $0.04 $0.03   Weighted average number of shares outstanding: Basic 25,662 24,797 25,529 24,566   Diluted 26,725 27,611 26,928 27,222   Supplementary Financial Information             Unaudited Reconciliation of GAAP Financial Information to NON-GAAP (In US$ thousands)   Three months ended June 30   GAAP FAS123R Non GAAP GAAP FAS123R Non GAAP 2008 Adjustments   2008 2007 Adjustments 2007 Unaudited   Revenues $3,568 $3,568 $2,617 $2,617   Cost of revenues 459 12 447 346 6 340   Gross profit 3,109 (12) 3,121 2,271 (6) 2,277     Operating expenses:   Research and development 792 67 725 539 62 477   Sales and marketing 967 68 899 810 42 768   General and administrative 839 209 630 627 131 496   Total operating expenses 2,598 344 2,254 1,976 235 1,741             Operating profit 511 356 867 295 241 536   Interest and other expense, net 71 71 188 188   Income before taxes 582 938 483 724   Taxes on income - - - -   Net income $582 $938 $483 $724     Earning per share- basic $0.02 $0.04 $0.02 $0.03   Earning per share- diluted $0.02 $0.04 $0.02 $0.03   Weighted average number of shares outstanding: Basic 25,662 25,662 24,797 24,797   Diluted 26,725 26,725 27,611 27,611   Supplementary Financial Information             Unaudited Reconciliation of GAAP Financial Information to NON-GAAP (In US$ thousands)   Six months ended June 30   GAAP FAS123R Non GAAP GAAP FAS123R Non GAAP 2008 Adjustments 2008 2007 Adjustments 2007 Unaudited   Revenues $6,969 $6,969 $5,022 $5,022   Cost of revenues 908 24 884 632 13 619   Gross profit 6,061 (24) 6,085 4,390 (13) 4,403     Operating expenses:   Research and development 1,573 182 1,391 995 121 874   Sales and marketing 1,982 149 1,833 1,636 88 1,548   General and administrative 1,708 535 1,173 1,288 262 1,026   Total operating expenses 5,263 866 4,397 3,919 471 3,448             Operating profit 798 890 1,688 471 484 955   Interest and other expense, net 191 191 279 279   Income before taxes 989 1,879 750 1,234   Taxes on income 7 7 - -   Net income $982 $1,872 $750 $1,234     Earning per share- basic $0.04 $0.07 $0.03 $0.05   Earning per share- diluted $0.04 $0.07 $0.03 $0.05   Weighted average number of shares outstanding: Basic 25,529 25,529 24,566 24,566   Diluted 26,928 26,928 27,222 27,222   COMMTOUCH SOFTWARE LTD.         CONDENSED CONSOLIDATED CASH FLOW DATA (In US$ thousands)     Three months ended Six months ended June 30 June 30 2008 2007 2008 2007 Cash flow from operating activities Unaudited Unaudited Unaudited Unaudited   Net income $582 $483 $982 $750   Adjustments: Depreciation 117 90 223 172 Compensations related to options issued to employees and consultants 366 259 915 514   Changes in assets and liabilities: Increase in trade receivables (235) (231) (191) (343) Decrease in prepaid expenses and other receivables 65 102 100 88 Increase (decrease) in accounts payable 72 (186) 45 (70) (Decrease) increase in employees and payroll accruals, accrued expenses and other liabilities (145) (47) 37 38 (Decrease) increase in deferred revenues (225) (28) (430) 237 (Decrease) increase in accrued severance pay, net (6) (14) 6 (3) Other - - - (2) Net cash provided by operating activities 591 428 1,687 1,381   Cash from investing activities   Change in short term cash deposit - - 1,300 - Purchase of marketable securities - - - (500) Increase in long - term lease deposits (19) (13) (29) (9) Proceeds from sale of Fixed Assets - - - 2 Purchase of property and equipment (173) (123) (272) (398) Net cash used in investing activities (192) (136) 999 (905)   Cash flows from financing activities   Proceeds from options and warrants exercises 579 299 802 1,129 Net cash provided by financing activities 579 299 802 1,129   Increase in cash and cash equivalents 978 591 3,488 1,605 Cash and cash equivalents at the beginning of the period 13,317 9,018 10,807 8,004 Cash and cash equivalents at the end of the period $14,295 $9,609 $14,295 $9,609