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Press release from Business Wire

Zix Corporation Sets Record Revenue for First Quarter 2012

<p> <i><b>Company exceeds $10 million in quarterly revenue</b></i> </p>

Tuesday, April 24, 2012

Zix Corporation Sets Record Revenue for First Quarter 201216:10 EDT Tuesday, April 24, 2012 DALLAS (Business Wire) -- Zix Corporation (NASDAQ: ZIXI), the leader in email encryption services, today announced financial results for the first quarter ended March 31, 2012. First Quarter 2012 Financial Highlights The Company achieved first quarter revenue of $10.3 million, an increase of 11.1%, year-over-year, the Company's 13th consecutive quarterly record in revenue First quarter GAAP net income of $0.04 per share, an increase of 11.0%, year-over-year (1) First quarter Non-GAAP net income of $0.04 per share, an increase of 24.5%, year-over-year (1) Cash, cash equivalents and commercial paper investments totaling $18 million, a decrease of $2.7 million compared to the December 31, 2011, ending cash balance, reflecting the cash used for share repurchases “In the first quarter, we set another revenue record exceeding our revenue guidance and met the high-end of our guidance for earnings per share. This strong start to 2012 shows our continued strength and gives us confidence as we move forward through the year,” said Rick Spurr, ZixCorp's Chairman and Chief Executive Officer. First Quarter 2012 Corporate Financial Summary and Other Operational Metrics$ in Millions, except per share and % data     Q12012     Q12011     % or $Change (1) Revenue     $10.3     $9.3     11.1% GAAP Gross Profit     $8.4     $7.5     13.3% GAAP Net Income     $2.4     $2.4     1.1% GAAP Net Income Per Share - Diluted     $0.04     $0.03     11.0% Non-GAAP Adjusted Gross Profit (2)     $8.5     $7.5     13.5% Non-GAAP Adjusted Net Income (2)     $2.9     $2.5     13.4% Non-GAAP Adjusted Net Income Per Share-Diluted (2)     $0.04     $0.04     24.5% Adjusted EBITDA (2) (3)     $3.3     $2.9     16.2% Adjusted EBITDA Margin (2) (3)     32%     31%     1pt Email Encryption New First Year Orders     $1.7     $1.5     14.2% Email Encryption Total Orders     $9.1     $9.0     0.9% Email Encryption Bookings Backlog (4)     $52.3     $49.7     5.3%(1)   Changes are based on actuals versus numbers shown in the columns which may reflect rounding (2) 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 (3) Adjusted earnings before interest, taxes, depreciation and amortization (4) Service contract commitments that represent future revenue to be recognized as the services are provided   Business HighlightsZixCorp introduced superior transport layer security (TLS) support with the new release of ZixGateway 4.3. By integrating TLS in the policy console, compliance and security officers benefit from reduced administration, increased delivery control, enhanced transparent delivery, guaranteed encrypted replies and unique reporting capabilities that do not exist with any other TLS email solution. ZixCorp accomplished an industry milestone registering the 30 millionth member of ZixDirectory®. Growing at approximately 100,000 members per week, ZixDirectory continues to be the largest email encryption network in the world. Outlook The Company forecasts revenue for the second quarter to be between $10.3 million and $10.5 million and fully diluted adjusted earnings per share of $0.04. For the full year, the Company reaffirms previously issued revenue guidance of $41 million to $43 million and fully diluted Non-GAAP adjusted earnings per share of $0.19 to $0.20. Conference Call Information: The Company will discuss its financial results and outlook on a conference call on Tuesday, April 24, 2012, at 5 p.m. ET. A live webcast of the conference call will be available on our investor relations Web site at http://investor.zixcorp.com. Alternatively, participants can access the conference call by dialing 1-800-901-5213 (U.S. toll-free) or 1-617-786-2962 (international) at least 15 minutes before the call and entering access code 83500277. An audio replay of the conference will be available until May 2, 2012, by dialing 1-888-286-8010 (U.S. toll-free) or 1-617-801-6888 (international) and entering the access code 27023964. 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, the SEC, and more than 1,400 hospitals and 1,700 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 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 and data security 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         March 31,2012December 31,(unaudited)2011ASSETS Current assets: Cash and cash equivalents $ 18,006,000 $ 20,680,000 Receivables, net 1,149,000 704,000 Prepaid and other current assets 1,365,000 1,422,000 Deferred tax assets   3,065,000   1,551,000 Total current assets 23,585,000 24,357,000 Property and equipment, net 2,123,000 2,228,000 Goodwill 2,161,000 2,161,000 Deferred tax assets 47,223,000 48,806,000 Other assets   -   - Total assets $ 75,092,000 $ 77,552,000     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 1,985,000 $ 2,292,000 Deferred revenue   17,023,000   16,568,000 Total current liabilities 19,008,000 18,860,000 Long-term liabilities: Deferred revenue 547,000 795,000 Deferred rent   125,000   140,000 Total long-term liabilities   672,000   935,000 Total liabilities 19,680,000 19,795,000 Total stockholders' equity   55,412,000   57,757,000 Total liabilities and stockholders' equity $ 75,092,000 $ 77,552,000     ZIX CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)         Three Months Ended March 31,   2012     2011   Revenues $ 10,301,000 $ 9,271,000   Cost of revenues   1,855,000     1,817,000   Gross profit 8,446,000 7,454,000 Operating expenses: Research and development 1,477,000 1,313,000 Selling, general and administrative   4,330,000     3,760,000   Total operating expenses   5,807,000     5,073,000     Operating income 2,639,000 2,381,000 Operating margin 26 % 26 %   Other income, net 5,000 42,000   Income before income taxes 2,644,000 2,423,000 Income tax (expense) benefit   (218,000 )   (24,000 ) Net income $ 2,426,000   $ 2,399,000     Basic income per common share: $ 0.04   $ 0.04       Diluted income per common share: $ 0.04   $ 0.03     Shares used in per share calculation - basic   63,022,777     67,182,916     Shares used in per share calculation - diluted   63,764,735     70,006,906   Note: EPS totals off due to rounding     ZIX CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)         Three Months Ended March 31,   2012     2011   Operating activities: Net income $ 2,426,000 $ 2,399,000 Non-cash items in net income 608,000 455,000 Changes in operating assets and liabilities   (501,000 )   560,000   Net cash provided by operating activities 2,533,000 3,414,000   Investing activities: Purchases of property and equipment (228,000 ) (208,000 ) (Purchase) sale of commercial paper   -     (2,290,000 ) Net cash used in investing activities (228,000 ) (2,498,000 )   Financing activities: Proceeds from exercise of stock options 19,000 1,239,000 Proceeds from exercise of warrants - 23,000 Payment of license subscription note payable - (34,000 ) Purchase of Treasury Stock   (4,998,000 )   (5,000,000 ) Net cash (used by) provided by financing activities   (4,979,000 )   (3,772,000 )   (Decrease) increase in cash and cash equivalents (2,674,000 ) (2,856,000 ) Cash and cash equivalents, beginning of period   20,680,000     24,619,000   Cash and cash equivalents, end of period $ 18,006,000   $ 21,763,000       ZIX CORPORATIONRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)         Three Months EndedMarch 31,   2012     2011   Revenue: GAAP revenue $ 10,301,000   $ 9,271,000     Gross profit: GAAP gross profit $ 8,446,000 $ 7,454,000 Stock-based compensation charges (1) (A)   25,000     12,000   Non-GAAP adjusted gross profit $ 8,471,000   $ 7,466,000     Operating income: GAAP operating income $ 2,639,000 $ 2,381,000 Stock-based compensation charges (1) (A) 207,000 119,000 Non-recurring litigation costs (2) (B)   158,000     -   Non-GAAP adjusted operating income $ 3,004,000   $ 2,500,000       Net income: GAAP net income $ 2,426,000 $ 2,399,000 Stock-based compensation charges (1) (A) 207,000 119,000 Non-recurring litigation costs (2) (B) 158,000 - Income tax impact (C)   69,000     4,000   Non-GAAP adjusted net income $ 2,860,000   $ 2,522,000       Diluted net income per common share: GAAP net income $ 0.04 $ 0.03 Adjustments per share (A-C) $ 0.00   $ 0.01   Non-GAAP adjusted net income $ 0.04   $ 0.04     Shares used to compute Non-GAAP adjusted net income per share - diluted   63,764,735     70,006,906     Reconciliation of Net income to EBITDA and Adjusted EBITDA: (D) Net income $ 2,426,000 $ 2,399,000 Income tax provision 218,000 24,000 Interest expense - 4,000 Depreciation expense   333,000     331,000   EBITDA 2,977,000 2,758,000   Adjustments: Share-based compensation expense (A) 207,000 119,000 Non-recurring litigation costs (B) 158,000 -     Adjusted EBITDA $ 3,342,000   $ 2,877,000     Adjusted EBITDA margin 32.4 % 31.0 %   (1) Stock-based compensation charges are included as follows: Cost of revenues $ 25,000 $ 12,000 Research and development 21,000 13,000 Selling, general and administrative   161,000     94,000   $ 207,000   $ 119,000   (2) Non-recurring litigation costs are included as follows: Cost of revenues - - Selling, general and administrative   158,000     -   $ 158,000   $ -   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 (D) 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, Net income, Net income per share - diluted, and EBITDA for non-cash stock-based compensation expense, and non-recurring litigation expense to derive Non-GAAP adjusted Gross profit, adjusted Operating income, adjusted Net income, 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, Net income, 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. See items (A) through (C) below for further information on the current quarter's reconciling items. Items (A) through (D) 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," "Net income per share - diluted" and "EBITDA" and correspond to the categories explained in further detail below under (A) through (D). (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) Non-recurring litigation costs. See item (2) on previous page for breakdown of non-recurring litigation costs. 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) 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 previous periods. The remaining provision for income taxes represents expected cash taxes to be paid. (D) EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA adds back stock-based compensation and non-recurring litigation expenses. ZixCorpInvestor Relations:Charles Messman, 323-468-2300zixi@mkr-group.comorPublic Relations:Taylor Stansbury, 214-370-2134tstansbury@zixcorp.com