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Press release from Business Wire

Zix Corporation Announces 2012 Fourth Quarter and Year-End Results

<p> <i><b>Company's full-year 2012 performance sets records in new first year orders, backlog, revenue and adjusted earnings per share</b></i> </p>

Tuesday, February 19, 2013

Zix Corporation Announces 2012 Fourth Quarter and Year-End Results16:10 EST Tuesday, February 19, 2013 DALLAS (Business Wire) -- Zix Corporation (NASDAQ: ZIXI), the leader in email encryption services, today announced financial results for the fourth quarter and full year ended Dec. 31, 2012. Fourth Quarter 2012 Financial Highlights Fourth quarter new first year orders of $2.2 million Fourth quarter revenue of $11.7 million, an increase of 18.2% year-over-year, the Company's 16th consecutive quarterly record in revenue Fourth quarter GAAP net income of $0.06 per share, a decrease of $0.16 year-over-year due to changes in deferred tax valuation allowances(1) Fourth quarter Non-GAAP net income of $0.05 per share, an increase of 9.8% year-over-year The Company generated approximately $0.4 million in cash flow from operations, a decrease of $2.1 million year-over-year primarily due to increased R&D and sales and marketing expenditures Cash and cash equivalents totaled $23.0 million, the same as the Sept. 30, 2012, ending cash balance Full-Year 2012 Financial Highlights Ending backlog of $57.7 million, an increase of 7.5% from the prior year Full-Year new first year orders of $9.0 million, an increase of 27.0% from the prior year Full-year revenue of $43.4 million, an increase of 13.7% year-over-year and a record high for the company Full-year GAAP net income of $0.17 per share, down $0.16 year-over-year due to changes in deferred tax valuation allowances(1) Full-year Non-GAAP net income of $0.18 per share, an increase of 13.6% year-over-year and a record high for the company The Company generated approximately $12.5 million in cash flow from operations for the full year ended Dec. 31, 2012, a decrease of $0.7 million year-over-year primarily due to increased R&D and sales and marketing expenditures Cash and cash equivalents at year-end was $23.0 million, despite $9.0 million spent on share repurchases during 2012. This $23.0 million is an increase of $2.3 million compared to the ending cash balance for 2011 “We are very pleased to report record financial results for 2012 in new first year orders, backlog, revenue and adjusted earnings per share,” said Rick Spurr, ZixCorp's Chairman and Chief Executive Officer. “During the year, we continued to enhance our email encryption solution, maintaining our industry-leading ease of use and our position as the market leader. We also began investments in two new data protection products and expanded our resources in sales and marketing to extend our reach. These investments, and the recent unveiling of the final omnibus HIPAA rule, position ZixCorp for revenue growth as we progress through 2013.” Fourth Quarter and Full-Year 2012 Corporate Financial Summary and Other Operational Metrics   Q4   Q4   % or $   FY   FY   % or $$ in Millions, except per share data   2012   2011   Change (2)   2012   2011   Change (2) Revenue (3)   $11.7     $9.9     18.2%   $43.4     $38.1     13.7% GAAP Gross Profit (3)   $9.6     $8.0     19.9%   $35.7     $30.9     15.6% GAAP Net Income (1)   $4.0     $15.0     (73.3%)   $11.0     $22.6     (51.2%) GAAP Net Income Per Share – Diluted (1)   $0.06     $0.23     (71.5%)   $0.17     $0.34     (47.8%) Non-GAAP Adjusted Gross Profit (3) (4)   $9.7     $8.1     20.0%   $35.9     $31.0     15.7% Non-GAAP Adjusted Net Income (4)   $3.0     $2.9     2.7%   $11.6     $10.9     6.2% Non-GAAP Adjusted Net Income Per Share – Diluted (4)   $0.05     $0.04     9.8%   $0.18     $0.16     13.6% Adjusted EBITDA (4) (5)   $3.4     $3.5     (4.0%)   $13.3     $12.7     4.9% Adjusted EBITDA Margin (4) (5)     28.9%     35.5%   (6.7pts)     30.6%     33.2%   (2.6pts) Email Encryption New First Year Orders   $2.2     $1.9     16.0%   $9.0     $7.1     27.0% Email Encryption Total Orders   $12.9     $11.1     16.2%   $48.2     $42.3     14.8% Email Encryption Bookings Backlog (6)   $57.7     $53.7     7.5%             (1) GAAP Net Income for the quarters and years ended Dec. 31, 2012, and Dec. 31, 2011, include tax benefits of $2.3 million and $11.8 million, respectively, resulting from reductions to the deferred tax valuation allowance (2) Changes reported are based on actual results, and numbers shown in the columns may reflect rounding (3) Amounts indicated are from continuing operations (4) 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 (5) Adjusted earnings before interest, taxes, depreciation and amortization (6) Service contract commitments that represent future revenue to be recognized as the services are provided Outlook For the first quarter 2013, the Company forecasts revenue to be between $11.7 million and $11.9 million and fully diluted adjusted earnings per share to be $0.03. Full-year 2013 revenues are projected to be between $48 million and $50 million. Fully diluted Non-GAAP adjusted earnings per share, which are adjusted primarily for non-cash stock-based compensation and non-recurring expense items, are projected to be between $0.19 and $0.20. Conference Call Information The Company will discuss its financial results and outlook on a conference call on Tuesday, Feb. 19, 2013, 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 1-800-561-2693 (U.S. toll-free) or 1-617-614-3523 (international) at least 15 minutes before the call and entering access code 78780561. An audio replay of the conference will be available until Feb. 26, 2013, by dialing 1-888-286-8010 (U.S. toll-free) or 1-617-801-6888 (international) and entering the access code 69992551. An archive of the webcast will also be available on the ZixCorp investor relations Web site. About Zix Corporation ZixCorp offers industry-leading email encryption and a unique email DLP solution to meet your company's data protection and compliance needs. ZixCorp is trusted by the nation's most influential institutions in healthcare, finance and government for easy to use secure email solutions. ZixCorp is publicly traded on the Nasdaq Global Market under the symbol ZIXI, and its headquarters are in Dallas, Texas. 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       December 31,2012December 31,(unaudited)2011ASSETS Current assets: Cash and cash equivalents $ 22,988,000 $ 20,680,000 Receivables, net 967,000 704,000 Prepaid and other current assets 1,697,000 1,422,000 Deferred tax assets   1,600,000   1,551,000 Total current assets 27,252,000 24,357,000 Property and equipment, net 2,384,000 2,228,000 Goodwill 2,161,000 2,161,000 Deferred tax assets 51,052,000 48,806,000 Other assets   -   - Total assets $ 82,849,000 $ 77,552,000     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 3,156,000 $ 2,292,000 Deferred revenue   17,470,000   16,568,000 Total current liabilities 20,626,000 18,860,000 Long-term liabilities: - - Deferred revenue 902,000 795,000 Deferred rent   76,000   140,000 Total long-term liabilities   978,000   935,000 Total liabilities 21,604,000 19,795,000 Total stockholders' equity   61,245,000   57,757,000 Total liabilities and stockholders' equity $ 82,849,000 $ 77,552,000       ZIX CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)             Three Months Ended December 31,Twelve Months Ended December 31,2012201120122011 Revenue $ 11,689,000 $ 9,885,000 $ 43,356,000 $ 38,145,000   Cost of revenue   2,055,000     1,849,000     7,609,000     7,211,000   Gross profit 9,634,000 8,036,000 35,747,000 30,934,000 Operating expenses: Research and development 2,431,000 1,281,000 7,419,000 5,229,000 Selling, general and administrative   5,665,000     3,818,000     19,385,000     15,128,000   Total operating expenses   8,096,000     5,099,000     26,804,000     20,357,000     Operating income 1,538,000 2,937,000 8,943,000 10,577,000 Operating margin 13 % 30 % 21 % 28 %   Other income, net 95,000 9,000 111,000 88,000   Income before income taxes 1,633,000 2,946,000 9,054,000 10,665,000 Income tax (expense) benefit   2,358,000     12,021,000     1,949,000     11,889,000   Net income $ 3,991,000   $ 14,967,000   $ 11,003,000   $ 22,554,000     Basic income per common share: $ 0.07   $ 0.23   $ 0.18   $ 0.34       Diluted income per common share: $ 0.06   $ 0.23   $ 0.17   $ 0.34     Shares used in per share calculation - basic   60,913,533     65,259,001     62,211,228     65,439,078     Shares used in per share calculation - diluted   61,633,224     65,865,826     62,875,347     67,261,514   Note: EPS totals off due to rounding       ZIX CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)       Twelve Months Ended December 31,20122011 Operating activities: Net income $ 11,003,000 $ 22,554,000 Non-cash items in net income 224,000 (9,806,000 ) Changes in operating assets and liabilities   1,306,000     471,000   Net cash provided by operating activities 12,533,000 13,219,000   Investing activities: Purchases of property and equipment (1,533,000 ) (1,471,000 ) (Purchase) sale of commercial paper   -     -   Net cash used in investing activities (1,533,000 ) (1,471,000 )   Financing activities: Proceeds from exercise of stock options 308,000 1,791,000 Proceeds from exercise of warrants - 3,707,000 Payment of license subscription note payable - (186,000 ) Purchase of Treasury Stock   (9,000,000 )   (20,999,000 ) Net cash used in financing activities   (8,692,000 )   (15,687,000 )   Decrease in cash and cash equivalents 2,308,000 (3,939,000 ) Cash and cash equivalents, beginning of period   20,680,000     24,619,000   Cash and cash equivalents, end of period $ 22,988,000   $ 20,680,000         ZIX CORPORATIONRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)           Three Months EndedTwelve Months EndedDecember 31,December 31,2012201120122011 Revenue: GAAP revenue $ 11,689,000   $ 9,885,000   $ 43,356,000   $ 38,145,000     Cost of revenue GAAP cost of revenue $ 2,055,000 $ 1,849,000 $ 7,609,000 $ 7,211,000 Stock-based compensation charges (1) (A)   (41,000 )   (26,000 )   (135,000 )   (71,000 ) Non-GAAP adjusted cost of revenue $ 2,014,000   $ 1,823,000   $ 7,474,000   $ 7,140,000     Gross profit: GAAP gross profit $ 9,634,000 $ 8,036,000 $ 35,747,000 $ 30,934,000 Stock-based compensation charges (1) (A)   41,000     26,000     135,000     71,000   Non-GAAP adjusted gross profit $ 9,675,000   $ 8,062,000   $ 35,882,000   $ 31,005,000     Research and development expense GAAP research and development expense $ 2,431,000 $ 1,281,000 $ 7,419,000 $ 5,229,000 Stock-based compensation charges (1) (A)   (51,000 )   (21,000 )   (142,000 )   (68,000 ) Non-GAAP adjusted research and development expense $ 2,380,000   $ 1,260,000   $ 7,277,000   $ 5,161,000     Selling and marketing expense GAAP Selling and marketing expense $ 2,974,000 $ 2,279,000 $ 10,984,000 $ 9,196,000 Stock-based compensation charges (1) (A)   (114,000 )   (64,000 )   (360,000 )   (176,000 ) Non-GAAP adjusted selling and marketing expense $ 2,860,000   $ 2,215,000   $ 10,624,000   $ 9,020,000     General and administrative expense GAAP general and administrative expense $ 2,691,000 $ 1,539,000 $ 8,401,000 $ 5,932,000 Stock-based compensation charges (1) (A) (165,000 ) (93,000 ) (539,000 ) (302,000 ) Non-recurring litigation costs (2) (B)   (1,014,000 )   -     (1,712,000 )   -   Non-GAAP adjusted general and administrative expense $ 1,512,000   $ 1,446,000   $ 6,150,000   $ 5,630,000     Operating income: GAAP operating income $ 1,538,000 $ 2,937,000 $ 8,943,000 $ 10,577,000 Stock-based compensation charges (1) (A) 371,000 204,000 1,176,000 617,000 Non-recurring litigation costs (2) (B)   1,014,000     -     1,712,000     -   Non-GAAP adjusted operating income $ 2,923,000   $ 3,141,000   $ 11,831,000   $ 11,194,000   Adjusted Operating Margin 25.0%31.8%27.3%29.3%   Net income: GAAP net income $ 3,991,000 $ 14,967,000 $ 11,003,000 $ 22,554,000 Stock-based compensation charges (1) (A) 371,000 204,000 1,176,000 617,000 Non-recurring litigation costs (2) (B) 1,014,000 - 1,712,000 - Income tax impact (C)   (2,377,000 )   (12,252,000 )   (2,295,000 )   (12,248,000 ) Non-GAAP adjusted net income $ 2,999,000   $ 2,919,000   $ 11,596,000   $ 10,923,000     Diluted net income per common share: GAAP net income $ 0.06 $ 0.23 $ 0.17 $ 0.34 Adjustments per share (A-C) $ (0.01 ) $ (0.19 ) $ 0.01   $ (0.18 ) Non-GAAP adjusted net income $ 0.05   $ 0.04   $ 0.18   $ 0.16   Shares used to compute Non-GAAP adjusted net income per share - diluted   61,633,224     65,865,826     62,875,347     67,261,514     Reconciliation of Net income to EBITDA and Adjusted EBITDA: (D) Net income $ 3,991,000 $ 14,967,000 $ 11,003,000 $ 22,554,000 Income tax provision (2,358,000 ) (12,021,000 ) (1,949,000 ) (11,889,000 ) Interest expense - 10,000 1,000 7,000 Depreciation expense   355,000     353,000     1,343,000     1,373,000   EBITDA 1,988,000 3,309,000 10,398,000 12,045,000   Adjustments: Share-based compensation expense (A) 371,000 204,000 1,176,000 617,000 Non-recurring litigation costs (B)   1,014,000     -     1,712,000     -   Adjusted EBITDA $ 3,373,000   $ 3,513,000   $ 13,286,000   $ 12,662,000   Adjusted EBITDA margin 28.9 % 35.5 % 30.6 % 33.2 %   (1) Stock-based compensation charges are included as follows: Cost of revenues $ 41,000 $ 26,000 $ 135,000 $ 71,000 Research and development 51,000 21,000 142,000 68,000 Selling and marketing 114,000 64,000 360,000 176,000 General and administrative   165,000     93,000     539,000     302,000   $ 371,000   $ 204,000   $ 1,176,000   $ 617,000   (2) Non-recurring litigation costs are included as follows: General and administrative   1,014,000     -     1,712,000     -   $ 1,014,000   $ -   $ 1,712,000   $ -     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 Cost of revenue, Gross profit, Research and development expense, Selling and marketing expense, General and administrative expense, 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 Cost of revenue, adjusted Gross profit, adjusted Research and development expense, adjusted Selling and marketing expense, adjusted general and administrative expense, 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