Commtouch Reports 34% Fourth Quarter Revenue Increase and Full Year 2010 Financial Results

Total Revenue: $5.4 million, representing a 34 percent increase year over year Non-GAAP Net Income: $1.4 million, representing 29 percent growth year over year Non-GAAP EPS: $0.06, representing a 50 percent increase year over year

Total Revenue: $18.2 million, representing a 20 percent increase year over year Non-GAAP Net Income: $5.4 million, representing 32 percent growth year over year Non-GAAP EPS: $0.22, representing a 38 percent increase year over year

Commtouch(R), a leading Internet Security solution provider, today announced its fourth quarter and full year results, for the period ending December 31, 2010.

During 2010, the company acquired the antivirus business of Command, signed new clients and expanded its engagements with existing ones for its broadened security suite. The company as well surpassed its growth objective with a 20% increase in earnings, and achieved a 32% increase in net income. These strong business indicators at the end of 2010 underlie management's expectations of continued long-term performance and growth.

Revenues for 2010 increased by 20% to $18,161 thousand, compared to $15,189 thousand in 2009. Earnings for the fourth quarter of 2010 increased by 34% to $5,377 thousand, compared to $4,014 thousand in the fourth quarter of 2009. Net income under US As a rule Accepted Accounting Principles for 2010 decreased by 15% to $4,403 thousand, compared to $5,160 thousand in 2009. For the fourth quarter of 2010, US GAAP net income was $1,667 thousand compared to net income of $3,179 thousand in the fourth quarter of 2009. GAAP net income in the fourth quarter of 2010 included a tax benefit of $1,029 thousand stemming from a deferred tax asset, compared to a tax benefit of $2,404 thousand in the fourth quarter of 2009. GAAP earnings per diluted share for 2010 were $0.18, a decrease of 10 percent, compared to $0.20 for 2009. GAAP earnings per diluted share for the quarter were $0.07, a decrease of 46 percent, compared to $0.13 in the fourth quarter of 2009. Non-GAAP net income for 2010 increased by 32% to $5,405 thousand, compared to $4,101 thousand in 2009. Non-GAAP net income for the fourth quarter of 2010 increased by 29% to $1,430 thousand, compared to $1,111 thousand for the fourth quarter of 2009. Non-GAAP earnings per diluted share for 2010 were $0.22, an increase of 38 percent, compared to $0.16 for 2009. Non-GAAP earnings per diluted share for the quarter were $0.06, an increase of 50 percent, compared to $0.04 for the fourth quarter of 2009. Deferred Earnings as of December 31, 2010 were $4,142 thousand compared to $4,457 thousand in deferred earnings as of September 30, 2010. Cash as of December 31, 2010 was $13,432 thousand, compared to $17,275 thousand as of December 31, 2009. The decrease is primarily due to the initial payment of $4.6 million for the acquisition of the Command antivirus division plus the amount expended in the share buy-back program and less the positive operating cash flow and warrants exercised, as mentioned below. Operating cash flow for 2010 was $4,317 thousand, compared to operating cash flow of $5,082 thousand in 2009. In the fourth quarter of 2010, operating cash flow was $802 thousand, compared to $1,844 thousand in the fourth quarter of 2009, a difference primarily due to payment timing. While the fourth quarter, 416 thousand warrants were exercised for a sum of in broad outline $730 thousand, which brings the total outstanding warrants to near zero. While the fourth quarter, the company completed the execution of its 2010 share buy-back program. As of December 31, 2010, the company had expended a total of $3,820 thousand for the repurchase of 1.03 million ordinary shares at an average price of $3.71 per share.

In September, Commtouch closed its acquisition of the Command Antivirus(R) division of Authentium. While the fourth quarter of 2010, Commtouch signed multiple contracts for the Command Antivirus product and significantly improved the product's public benchmark ranking. Commtouch continued expanding its customer base, particularly in the Asian market, and made significant inroads in selling its GlobalView(TM) URL Filtering offering to both new and existing clients. Commtouch released its seventh generation Recurrent Pattern Detection(TM) research platform. Commtouch released new products for the service provider market, including the Microsoft Exchange Connector and Outbound Spam Protection. On January 1, 2011, Ido Hadari took over the role of chief executive officer, and in mid-December 2010, Lior Samuelson became chairman of the board of directors.

The results of 2010

"We are pleased with the results of 2010, especially with the rapid integration of Command Antivirus into our operations and consolidated offering," said Mr. Hadari. "We have already started harvesting a number of the synergies from the deal. We are seeing increased interest in our broad combination of Internet security solutions. Each of our product lines is best-of-breed, and combined, they furthermore benefit our clients with reduced total cost of ownership and increased operational simplicity."

Mr. Hadari continued: "We are entering the year with a broad Internet Security offering, a strong customer base of more than 150 leading solution providers and solid financials. These assets form the foundation of our confidence in continued growth in 2011 and beyond."

Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude: share based compensation expenses, amortization of acquired intangible assets, deferred taxes and acquisition related costs. The purpose of such adjustments is to give an indication of our performance exclusive of non-cash charges and other items that are considered by management to be outside of our core operating results. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared under GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions.

The primary factors management uses in planning for

These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. We believe this adjustment is useful to investors as a measure of the ongoing performance of our business. We believe these non-GAAP financial measures provide consistent and comparable measures to help investors understand our current and future operating cash flow performance. These non-GAAP financial measures may differ materially from the non-GAAP financial measures used by other companies. Reconciliation between results on a GAAP and non-GAAP basis is provided in a table on the spur of the moment following the Consolidated Statements of Income. 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 pursuant to this agreement GAAP. Management uses both GAAP and non-GAAP measures when evaluating the business internally and in fixed and final form felt it important to make these non-GAAP adjustments available to investors.

Commtouch(R) provides proven Internet security innovation to more than 150 security companies and service providers for integration into their solutions. Commtouch's GlobalView(TM) and patented Recurrent Pattern Detection(TM)) technologies are founded on a unequalled cloud-based approach, and work at the same time in a comprehensive feedback loop to protect effectively in all languages and formats. Commtouch's Command Antivirus utilizes a multi-layered approach to provide award winning malware detection and industry-leading performance. Commtouch research automatically analyzes billions of Internet transactions in real-time in its global data centers to identify new threats as they are initiated, enabling our partners and clients to protect end-users from spam and malware, and ensure safe, compliant browsing. The company's expertise in building efficient, massive-scale security services has resulted in mitigating Internet threats for thousands of organizations and hundreds of millions of users in 190 countries. Commtouch was founded in 1991, is headquartered in Netanya, Israel, and has a subsidiary with offices in Sunnyvale, California and Palm Beach Gardens, Florida.

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 instance, statements henceforth tense, and statements including words just as "expect," "plan," "estimate," "anticipate," or "believe" are forward-looking statements. These statements are based on information available to us then of the release; we assume no obligation to update any of them. The statements in this release, including those relating to a) the expectation of continued long term performance and growth, and b) the company's optimistic business outlook for 2011 and beyond, 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 so then 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 innovation; 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, also 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.