The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from Business Wire

Zix Corporation Exceeds Guidance for Q2 Revenue and EPS

Tuesday, July 26, 2011

Zix Corporation Exceeds Guidance for Q2 Revenue and EPS16:10 EDT Tuesday, July 26, 2011 DALLAS (Business Wire) -- Zix Corporation (NASDAQ: ZIXI), the leader in email encryption services, today announced financial results for the second quarter ended June 30, 2011. Second Quarter 2011 Financial Highlights The Company achieved second quarter revenue from continuing operations of $9.4 million, an increase of 15%, year-over-year Second quarter GAAP net income of $0.04 per share, an increase of 72%, year-over-year (1) Second quarter Non-GAAP net income of $0.04 per share, an increase of 24%, year-over-year Cash flow from operations for the second quarter of $2.5 million, an increase of $0.7 million, year-over-year Cash, cash equivalents and commercial paper investments totaling $17.1 million, a decrease of $0.4 million compared to the ending cash balance for the second quarter last year “We are proud to have delivered another solid quarter of growth for ZixCorp shareholders,” said Rick Spurr, ZixCorp's Chairman and Chief Executive Officer. “Our growth and market leadership are the result of product excellence, a well-earned reputation for quality and service and a continued focus on execution.” Second Quarter 2011 Corporate Financial Summary and Other Operational Metrics   $ in Millions, except per share data   Q2 2011   Q2 2010   % or $Change (1) Revenue (2)   $9.4   $8.2   15% GAAP Gross Profit (2)   $7.7   $6.6   16% GAAP Net Income   $2.6   $1.5   74% GAAP Net Income Per Share - Diluted   $0.04   $0.02   72% Non-GAAP Adjusted Gross Profit (2) (3)   $7.7   $6.7   15% Non-GAAP Adjusted Net Income (3)   $2.7   $2.2   25% Non-GAAP Adjusted Net Income Per Share-Diluted (3)   $0.04   $0.03   24% Adjusted EBITDA (3) (4)   $3.0   $2.6   17% Adjusted EBITDA Margin (3) (4)   32.3%   31.7%   0.6 pts Email Encryption New First Year Orders   $2.0   $2.1   (3%) Email Encryption Total Orders   $12.5   $9.6   30% Email Encryption Bookings Backlog (5)   $52.6   $45.6   15%(1) Changes reported are based on actual results, and numbers shown in the columns may reflect rounding (2) Amounts indicated are from continuing operations (3) A reconciliation of GAAP to Non-GAAP adjusted results is attached to this press release and is available on our investor relations Web page at http://investor.zixcorp.com (4) Adjusted earnings before interest, taxes, depreciation and amortization (5) Service contract commitments that represent future revenue to be recognized as the services are provided Business Highlights Taher Elgamal, Ph.D. was elected to the Company's board of directors. Dr. Elgamal has served on the boards of several public and private companies. He is the founder of IdentityMind, Inc. and currently serves as CSO for Axway, Inc. He has also held executive roles at Tumbleweed Communications, Securify, Inc. and Netscape Communications. ZixCorp broadened its strength in channel partners with the addition of Azaleos and Paragon Development Systems. ZixCorp announced ZixAccessTM, a new inbound email decryption. With ZixAccess on their network, recipients can experience transparent email decryption with ZixCorp customers. Recipients can also benefit from easy scanning and archiving of messages sent in the clear and reports of outbound email risks to security or compliance officers. ZixCorp offers secure email integration with Microsoft Office 365, a cloud-hosted application suite. ZixCorp enables easy integration by leveraging Microsoft's Outbound Smarthost Connector capability to route email from the Microsoft hosted email service to ZixCorp® Email Encryption Services. Recognizing an opportunity to meet an increasing need for secure email, Pen Publishing selected ZixCorp® Email Encryption Services to enhance its current services and protect sensitive data in email for its customers. Pen Publishing is a managed security service provider (MSSP) with ZixCorp. Replacing its legacy vendor, Members 1st Federal Credit Union switched to ZixCorp®Email Encryption Services. Members 1st Federal Credit Union chose ZixCorp based on the power of the 27 million member ZixDirectory® email encryption community. ZixCorp signed a three-year renewal agreement with Austin Bank.ZixCorp will continue to provide email encryption for Austin Bank's 30 banking locations, enabling secure email with all customers and business partners. ZixCorp renewed its distribution agreement with xDefenders, Inc. in a three-year agreement. xDefenders is a managed security service provider (MSSP) and has offered the complete product line of ZixCorp® Email Encryption Services, including ZixGateway® and ZixMail®, since 2005. Outlook The Company forecasts revenue for the third quarter of 2011 to be between $9.5 and $9.7 million and fully diluted adjusted earnings per share of $0.04. For the full year 2011, the Company reaffirms previously issued revenue guidance of $38 to $40 million and fully diluted adjusted earnings per share of $0.14 to $0.16. Conference Call Information The Company will discuss its financial results and outlook on a conference call on Tuesday, July 26, 2011, at 5 p.m. ET. A live webcast of the conference call will be available on its investor relations Web site at http://investor.zixcorp.com. Alternatively, participants can access the conference call by dialing 1-800-510-9834 (U.S. toll-free) or 1-617-614-3669 (international) at least 15 minutes before the call and entering access code 21148521. An audio replay of the conference will be available until Aug. 2, 2011, by dialing 1-888-286-8010 (U.S. toll-free) or 1-617-801-6888 (international) and entering the access code 83141146. An archive for the webcast will also be available on the ZixCorp investor relations Web site. About Zix Corporation Zix Corporation (ZixCorp) provides the only email encryption services designed with your most important relationships in mind. Many of the most influential companies and government organizations use the proven ZixCorp® Email Encryption Services, including WellPoint, Humana, the SEC, and more than 1,200 hospitals and 1,500 financial institutions. ZixCorp Email Encryption Services are powered by ZixDirectory®, the largest email encryption community in the world. The tens of millions of ZixDirectory members can feel secure knowing their most important relationships are protected. For more information, visit www.zixcorp.com. Statements in this release that are not purely historical facts or that necessarily depend upon future events, including statements about forecasts of new orders, revenue or earnings, or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking statements. All forward-looking statements are based upon information available to ZixCorp on the date this release was issued. ZixCorp undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks or uncertainties related to how privacy law mandates may affect demand for email encryption and ZixCorp's ability to obtain and retain customers and grow revenues. ZixCorp may not succeed in addressing these and other risks. Further information regarding factors that could affect ZixCorp financial and other results can be found in the risk factors section of ZixCorp's most recent filing on Form 10-K with the Securities and Exchange Commission. ZIX CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS       June 30,2011December 31,(unaudited)2010ASSETS Current assets: Cash and cash equivalents $ 14,829,000 $ 24,619,000 Commercial paper 2,290,000 - Receivables, net 1,084,000 1,344,000 Prepaid and other current assets 1,462,000 1,115,000 Deferred tax assets   815,000   1,056,000 Total current assets 20,480,000 28,134,000 Property and equipment, net 2,296,000 2,209,000 Goodwill 2,161,000 2,161,000 Deferred tax assets 34,542,000 34,304,000 Other assets   -   44,000 Total assets $ 59,479,000 $ 66,852,000     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 2,607,000 $ 2,844,000 Deferred revenue 16,102,000 15,331,000 License subscription note payable   118,000   137,000 Total current liabilities 18,827,000 18,312,000 Long-term liabilities: Deferred revenue 952,000 1,439,000 License subscription note payable, non-current - 49,000 Deferred rent   159,000   165,000 Total long-term liabilities   1,111,000   1,653,000 Total liabilities 19,938,000 19,965,000 Total stockholders' equity   39,541,000   46,887,000 Total liabilities and stockholders' equity $ 59,479,000 $ 66,852,000       ZIX CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)             Three Months Ended June 30,Six Months Ended June 30,2011201020112010 Revenues $ 9,431,000 $ 8,194,000 $ 18,702,000 $ 15,673,000   Cost of revenues   1,756,000     1,570,000     3,573,000     3,072,000   Gross profit 7,675,000 6,624,000 15,129,000 12,601,000 Operating expenses: Research and development 1,292,000 1,248,000 2,605,000 2,556,000 Selling, general and administrative   3,796,000     3,988,000     7,556,000     8,216,000   Total operating expenses   5,088,000     5,236,000     10,161,000     10,772,000     Operating income 2,587,000 1,388,000 4,968,000 1,829,000 Operating margin 27 % 17 % 27 % 12 %   Other income, net 19,000 15,000 61,000 44,000   Income from continuing operations before income taxes 2,606,000 1,403,000 5,029,000 1,873,000 Income tax (expense) benefit   11,000     (24,000 )   (13,000 )   30,000   Income from continuing operations 2,617,000 1,379,000 5,016,000 1,903,000   Discontinued operations Income from operations of discontinued e-Prescribing segment - 188,000 - 478,000 Income tax expense   -     (66,000 )   -     (168,000 ) Income on discontinued operations (Note 1) - 122,000 - 310,000   Net income $ 2,617,000   $ 1,501,000   $ 5,016,000   $ 2,213,000     Basic income per common share: Income from continuing operations $ 0.04 $ 0.02 $ 0.08 $ 0.03 Income from discontinued operations   -     0.00     -     0.00   Net income $ 0.04   $ 0.02   $ 0.08   $ 0.03     Diluted income per common share: Income from continuing operations $ 0.04 $ 0.02 $ 0.07 $ 0.03 Income from discontinued operations   -     0.00     -     0.00   Net income $ 0.04   $ 0.02   $ 0.07   $ 0.03     Shares used in per share calculation - basic   65,208,875     63,976,551     66,190,442     63,883,974     Shares used in per share calculation - diluted   67,280,939     66,359,134     68,638,470     65,935,977   Note: EPS totals off due to rounding     Note 1Three Months Ended June 30,Six Months Ended June 30, Components of Income from discontinued operations: 2011201020112010   Revenue from discontinued operations $ - $ 721,000 $ - $ 1,658,000 Expenses from discontinued operations - 533,000 - 1,180,000 Tax expense   -     (66,000 )   -     (168,000 ) Income from discontinued operations $ -   $ 122,000   $ -   $ 310,000         ZIX CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)       Six Months Ended June 30,20112010 Operating activities: Net income $ 5,016,000 $ 2,213,000 Non-cash items in net income 891,000 1,689,000 Changes in operating assets and liabilities   (6,000 )   519,000   Net cash provided by operating activities 5,901,000 4,421,000   Investing activities: Purchases of property and equipment (755,000 ) (663,000 ) (Purchase) sale of marketable securities   (2,290,000 )   25,000   Net cash used in investing activities (3,045,000 ) (638,000 )   Financing activities: Proceeds from exercise of stock options 1,610,000 469,000 Proceeds from exercise of warrants 724,000 - Payment of license subscription note payable (68,000 ) (62,000 ) Purchase of Treasury Stock   (14,912,000 )   -   Net cash (used by) provided by financing activities   (12,646,000 )   407,000     (Decrease) increase in cash and cash equivalents (9,790,000 ) 4,190,000 Cash and cash equivalents, beginning of period   24,619,000     13,287,000   Cash and cash equivalents, end of period $ 14,829,000   $ 17,477,000         ZIX CORPORATIONRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)         Three Months EndedSix Months EndedJune 30,June 30,2011201020112010 Revenue: GAAP revenue $ 9,431,000   $ 8,194,000   $ 18,702,000   $ 15,673,000     Gross profit: GAAP gross profit $ 7,675,000 $ 6,624,000 $ 15,129,000 $ 12,601,000 Stock-based compensation charges (1) (A)   12,000     43,000     24,000     80,000   Non-GAAP adjusted gross profit $ 7,687,000   $ 6,667,000   $ 15,153,000   $ 12,681,000     Operating income: GAAP operating income $ 2,587,000 $ 1,388,000 $ 4,968,000 $ 1,829,000 Stock-based compensation charges (1) (A) 98,000 474,000 217,000 920,000 Non-recurring severance payments (2) (B) - 89,000 - 89,000 Expenses related to wind down of e-Prescribing business (3) (C)   -     2,000     -     2,000   Non-GAAP adjusted operating income $ 2,685,000   $ 1,953,000   $ 5,185,000   $ 2,840,000     Income from continuing operations: GAAP income from continuing operations $ 2,617,000 $ 1,379,000 $ 5,016,000 $ 1,903,000 Stock-based compensation charges (1) (A) 98,000 474,000 217,000 920,000 Non-recurring severance payments (2) (B) - 89,000 - 89,000 Expenses related to wind down of e-Prescribing business (3) (C) - 2,000 - 2,000 Income tax impact (D)   -     (62,000 )   4,000     (158,000 ) Non-GAAP adjusted income from continuing operations $ 2,715,000   $ 1,882,000   $ 5,237,000   $ 2,756,000     Income from discontinued operations: GAAP income on discontinued operations $ - $ 122,000 $ - $ 310,000 Stock-based compensation charges (1) (A) - 14,000 - 77,000 Non-recurring severance payments (2) (B) - 80,000 - 83,000 Expenses related to wind down of e-Prescribing business (3) (C) - - - 8,000 Income tax impact (D)   -     66,000     -     168,000   Non-GAAP adjusted income from discontinued operations $ -   $ 282,000   $ -   $ 646,000     Net income: GAAP net income $ 2,617,000 $ 1,501,000 $ 5,016,000 $ 2,213,000 Stock-based compensation charges (1) (A) 98,000 488,000 217,000 997,000 Non-recurring severance payments (2) (B) - 169,000 - 172,000 Expenses related to strategic review and wind down of e-Prescribing business (3) (C) - 2,000 - 10,000 Income tax impact (D)   -     4,000     4,000     10,000   Non-GAAP adjusted net income $ 2,715,000   $ 2,164,000   $ 5,237,000   $ 3,402,000     Diluted income from continuing operations per common share: GAAP income from continuing operations $ 0.04 $ 0.02 $ 0.07 $ 0.03 Adjustments per share (A-D) $ 0.00   $ 0.01   $ 0.00   $ 0.01   Non-GAAP adjusted income from continuing operations $ 0.04   $ 0.03   $ 0.08   $ 0.04     Diluted net income per common share: GAAP net income $ 0.04 $ 0.02 $ 0.07 $ 0.03 Adjustments per share (A-D) $ 0.00   $ 0.01   $ 0.00   $ 0.02   Non-GAAP adjusted net income $ 0.04   $ 0.03   $ 0.08   $ 0.05     Shares used to compute Non-GAAP adjusted net income per share - diluted   67,280,939     66,359,134     68,638,470     65,935,977     Reconciliation of Net income to EBITDA and Adjusted EBITDA: (E) Net income $ 2,617,000 $ 1,501,000 $ 5,016,000 $ 2,213,000 Income tax provision (11,000 ) 90,000 13,000 138,000 Interest expense 3,000 5,000 7,000 12,000 Depreciation expense   341,000     341,000     672,000     685,000   EBITDA 2,950,000 1,937,000 5,708,000 3,048,000   Adjustments: Share-based compensation expense (A) 98,000 488,000 217,000 997,000 Non-recurring severance payments (B) - 169,000 - 172,000 Expenses related to strategic review and wind down of e-Prescribing business (C)   -     2,000     -     10,000   Adjusted EBITDA $ 3,048,000   $ 2,596,000   $ 5,925,000   $ 4,227,000     Adjusted EBITDA margin 32.3 % 31.7 % 31.7 % 27.0 %   (1) Stock-based compensation charges are included as follows: Cost of revenues $ 12,000 $ 43,000 $ 24,000 $ 80,000 Research and development 13,000 48,000 26,000 91,000 Selling, general and administrative 73,000 383,000 167,000 749,000 Discontinued operations   -     14,000     -     77,000   $ 98,000   $ 488,000   $ 217,000   $ 997,000   (2) Non-recurring severance payments are included as follows: Selling, general and administrative $ - $ 89,000 $ - $ 89,000 Discontinued operations   -     80,000     -     83,000   $ -   $ 169,000   $ -   $ 172,000   (3) Expenses related to strategic review and the wind down of e-Prescribing business are as follows: Selling, general and administrative $ - $ 2,000 $ - $ 2,000 Discontinued operations   -     -     -     8,000   $ -   $ 2,000   $ -   $ 10,000   This presentation includes Non-GAAP measures. Our Non-GAAP 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 in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations of these measures, see items (A) through (E) on the next page.       ZIX CORPORATIONNOTES TO RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES USE OF NON-GAAP FINANCIAL INFORMATION The Company occasionally utilizes financial measures and terms not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) in order to provide investors with an alternative method for assessing our operating results in a manner that enables investors to more thoroughly evaluate our current performance as compared to past performance. We also believe these Non-GAAP measures provide investors with a more informed baseline for modeling the Company's future financial performance. Management uses these Non-GAAP financial measures to make operational and investment decisions, to evaluate the Company's performance, to forecast and to determine compensation. Further, management utilizes these performance measures for purposes of comparison with its business plan and individual operating budgets and allocation of resources. We believe that our investors should have access to, and that we are obligated to provide, the same set of tools that we use in analyzing our results. These Non-GAAP measures should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results. We have provided definitions below for certain Non-GAAP financial measures, together with an explanation of why management uses these measures and why management believes that these Non-GAAP financial measures are useful to investors. In addition, in our earnings release we have provided tables to reconcile the Non-GAAP financial measures utilized to GAAP financial measures. ADJUSTED NON-GAAP MEASURES Our Non-GAAP measures adjust GAAP Gross profit, Operating income, Income from continuing operations, Income from discontinued operations, Net income, Income per share - diluted from continuing operations, Net income per share - diluted, and EBITDA for non-cash stock-based compensation expense, non-recurring severance expenses and expense related to the wind down of our e-Prescribing business to derive Non-GAAP adjusted Gross profit, adjusted Operating income, adjusted Income from continuing operations, adjusted Income from discontinued operations, adjusted Net income, adjusted Income per share - diluted from continuing operations, adjusted Net income per share - diluted and adjusted EBITDA. We provide a reconciliation of these adjusted Non-GAAP measures to GAAP Gross profit, Operating income, Income from continuing operations, Income from discontinued operations, Net income, Income per share - diluted from continuing operations, Net income per share - diluted and EBITDA. We do not provide a reconciliation of forward-looking adjusted Non-GAAP earnings per share to GAAP earnings per share. Our forward-looking adjusted Non-GAAP earnings per share information consistently excludes non-cash stock-based compensation expense. Additionally, the adjusted Non-GAAP earnings per share will consistently exclude non-recurring items that impact our ongoing business. At this time, such one-time transactions are unknown and not available. Estimates of these one-time items may differ materially from actual results. See items (A) through (C) below for further information on the current quarter's reconciling items. Items (A) through (E) on the "Reconciliation of GAAP to Non-GAAP Financial Measures" table are listed to the right of certain categories under "Gross profit," "Operating income," "Net income from continuing operations," "Net income from discontinued operations," "Net income," "Net income from continuing operations per share - diluted," "Net income per share - diluted" and "EBITDA" and correspond to the categories explained in further detail below under (A) through (E). (A) Non-cash stock-based compensation charges relating to stock option grants awarded to employees and third-party service providers and accounted for in accordance with Share-Based Payment accounting guidance. See (1) on previous page for breakdown of stock-based compensation. Because of varying valuation methodologies, subjective assumptions and varying award types, the Company believes that the exclusion of stock-based compensation charges provides for more accurate comparisons to our peer companies and for a more accurate comparison of our financial results to previous periods. Additionally, the Company believes it is useful to investors to understand the specific impact of non-cash stock-based compensation charges on our operating results. (B) Severance payments related to reduction in workforce. See item (2) on previous page for breakdown of severance payments. The Company's management excludes these costs when evaluating the ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results. (C) Expenses related to strategic review and wind down of the Company's e-Prescribing business segment. The Company's management excludes these costs when evaluating the ongoing performance and/or predicting its earnings trends and therefore excludes these charges when presenting Non-GAAP financial measures. (D) The Non-GAAP adjustment to the tax provision represents the non-cash tax expense included in the GAAP tax provision, including the current period utilization of deferred tax assets created in pervious periods. The remaining provision for income taxes represents expected cash taxes to be paid. (E) EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA adds back stock-based compensation, severance payments and expenses relating to the wind down of the Company's e-Prescribing business. ZixCorpInvestor Relations:Charles Messman, 323-468-2300zixi@mkr-group.comorPublic Relations:Taylor Stansbury, 214-370-2134tstansbury@zixcorp.com