COMMTOUCH SOFTWR LTD (CTCH)

[midastouch017]

Commtouch Reports Financial Results for the First Quarter of 2008
Monday May 5, 3:00 am ET
83% Growth in Non-GAAP Net Income and 41% Growth in Revenues Year-Over-Year

SUNNYVALE, Calif.--(BUSINESS WIRE)--Commtouch® (NASDAQ:CTCH - News), a leading email and web defense technology provider, today announced its first quarter results for the period ending March 31, 2008.
First Quarter 2008 Highlights:

Revenues for the first quarter of 2008 increased by 41% to $3,401 thousand compared to $2,405 thousand in the first quarter of 2007.
Net income in accordance with US Generally Accepted Accounting Principles (US GAAP) for the first quarter of 2008 was $400 thousand compared to a net income of $267 thousand in the first quarter of last year, representing an increase of 50%. GAAP net income for the first quarter of 2008 included $534 thousand of stock-based compensation expenses (FAS123R), compared to $243 thousand of these expenses in the first quarter of 2007. This amount includes an expense of $183 thousand, most of which pertains to the acceleration of options of three board members who completed their multi-year terms on March 31, 2008.
Non-GAAP net income for the first quarter of 2008 was $934 thousand compared to a net income of $510 thousand in the first quarter of 2007, representing an increase of 83%.
Deferred Revenues (long-term and short-term) as of March 31, 2008 amounted to $3,230 thousand, a decrease of 6% over deferred revenues as of December 31, 2007.
Operating cash flow in the first quarter of 2008 was $1,096 thousand, compared to $953 thousand in the first quarter of 2007.
Cash, short term cash deposits and short and long-term marketable securities as of March 31, 2008 amounted to $15,530 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 $223 thousand, representing proceeds from the exercise of warrants and options.
The Company re-valued its Auction Rate Securities (“ARS”) portfolio and recorded an unrealized loss of $87 thousand in other comprehensive income as a reduction of shareholders equity. As of March 31, 2008, the Company had $2 million invested in triple-A rated US municipal bonds, which are Auction Rate Securities (“ARS”). As a result of the deterioration in the US financial markets, these securities have recently suffered from multiple failed auctions. Following third party advice, and since the Company believes this impairment is temporary due to current market conditions, the Company recorded this unrealized loss and also reclassified its ARS investments as long-term investments on its balance sheet.
The Company signed five new OEM licensing agreements during the first quarter of 2008. The Company’s global OEM partner count was 93 as of March 31, 2008.
Gideon Mantel, chief executive officer and chairman of the board of Commtouch said: “Our business remains strong and healthy. Our solution suite is a leader in combating the ever-growing spam problem. A number of the large accounts that we recently signed are now starting to generate business, and we have a healthy pipeline of potential new OEM license agreements. To top it off, we have been able to continue our strong growth, profitability and cash generation while investing in a new product line. We expect the new web security line to have a positive impact on our financials in 2009.”

Future Business Outlook

Based on current business activities and general economic conditions, Commtouch's management reiterates its full year 2008 guidance which it issued last 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, Monday, May 5, 2008 at 11 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.: 1-888-642-5032;
UK: 0-800-051-8913;
ISRAEL: 03-918-0687;
INTERNATIONAL: [phone]


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