Non-GAAP Net Income Increased by 19% to $1.2 Million

Commtouch® (NASDAQ:CTCH), a leading messaging and Web security technology provider, today announced its third quarter 2009 results.

Third Quarter 2009 Financial Highlights:

• Revenues increased by 8% to $3,899 thousand as compared with the third quarter of 2008
• Net income (US GAAP) increased by 32% to $849 thousand
• Net income (Non-GAAP) increased by 19% to $1,199 thousand
• Strong operating cash flow of $1,558 thousand
• The Company signed agreements with 10 new OEM partners

2009 Third Quarter Results:

• Revenues for the third quarter of 2009 increased by 8% to $3,899 thousand compared to $3,622 thousand in the third quarter of 2008.

• Net income in accordance with US Generally Accepted Accounting Principles (US GAAP) for the third quarter of 2009 was $849 thousand, as compared with $644 thousand in the third quarter of 2008.
• Non-GAAP net income for the third quarter of 2009 was $1,199 thousand, as compared with non-GAAP net income of $1,007 thousand for the third quarter of 2008. Non-GAAP net income for the third quarter of 2009 excludes $350 thousand of stock-based compensation expenses, recorded in accordance with Financial Accounting Standards No. 123R.
• Deferred Revenues (long-term and short-term) as of September 30, 2009 amounted to $2,888 thousand, compared to $2,976 in deferred revenues as of December 31, 2008.
• Operating cash flow for the third quarter of 2009 was $1,558 thousand, compared to $671 thousand in the third quarter of 2008.
• During the third quarter of 2009, the company continued executing its share buy-back program. As of September 30, 2009, the company had expended a total of $3,698 thousand out of the buy-back program of $5 million for the repurchase of 1,811 thousand shares at an average price of $2.04. The company intends to continue to implement the buy-back program under the guidance of its Board of Directors.
• Cash, short-term cash deposits and marketable securities as of September 30, 2009, amounted to $16,542 thousand, compared to $16,401 thousand as of December 31, 2008. The change is primarily the result of the positive operating cash flow as offset by the buy-back program.
• The Company signed agreements with ten new OEM partners during the third quarter, resulting in a total of 131 OEM partners using Commtouch messaging and/or Web security technologies.

”Throughout 2009, we have been successful in maintaining the growth of our company, strengthening our customer base, increasing profits and improving cash flow, rising above the difficulties in the world economy,” said Gideon Mantel, chief executive officer and chairman of the board. ”For 2010, we are confident that our growth rate will accelerate for both the top and bottom line over 2009.”

Business Outlook

Management expects to meet its annual guidance with expected annual revenues in the range of $15.1 to $15.4 million and non-GAAP net income above $4 million.

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 2009 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, November 4, 2009 at 9 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.: 1 866 860 9642;
ISRAEL: 03 918 0609;
INTERNATIONAL: +972 3 918 0609

The call will be available simultaneously via webcast through a link on Commtouch's website, at: www.commtouch.com. 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.

About Commtouch

Commtouch® (NASDAQ: CTCH) provides proven messaging and Web security technology to more than 100 security companies and service providers for integration into their solutions. Commtouch's patented Recurrent Pattern Detection™ (RPD™) and GlobalView™ technologies are founded on a unique cloud-based approach, and work together in a comprehensive feedback loop to protect effectively in all languages and formats. Commtouch technology automatically analyzes billions of Internet transactions in real-time in its global data centers to identify new threats as they are initiated, protecting email infrastructures and enabling 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 in Sunnyvale, Calif.

Stay abreast of the latest news at the Commtouch Café: http://blog.commtouch.com. For more information about enhancing security offerings with Commtouch technology, see http://www.commtouch.com or write to info@commtouch.com.

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, including those relating to a) the company's business outlook for 2009 and b) the company's performance in 2010, 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.

Contacts:

Commtouch
Ron Ela, 650-864-2291 (US)
+972-9-863-6813 (Int'l)
Chief Financial Officer
ron.ela@commtouch.com
or
GK Investor Relations
Ehud Helft or Kenny Green, +1-646-201-9246 (US)
+972-3-607-4717 (Int'l)
commtouch@gkir.com