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Press release from Business Wire

Zix Corporation Achieves Record in Total Orders and Increases New Sales in Q1 by More than 20 Percent

<p> <i><b>Backlog reaches $60 million for first time</b></i> </p>

Tuesday, April 23, 2013

Zix Corporation Achieves Record in Total Orders and Increases New Sales in Q1 by More than 20 Percent

16:10 EDT Tuesday, April 23, 2013

DALLAS (Business Wire) -- Zix Corporation (NASDAQ: ZIXI), the leader in email encryption services, today announced financial results for the first quarter ended Mar. 31, 2013.

First Quarter 2013 Financial Highlights

  • First quarter new first year orders of $2.1 million, an increase of 21.7% year-over-year
  • First quarter revenue of $11.8 million, an increase of 14.2% year-over-year, the Company's 17th consecutive quarterly record in revenue
  • First quarter GAAP net income of $0.01 per share, a decrease of 76.0% year-over-year (1)
  • First quarter Non-GAAP net income of $0.03 per share, a decrease of 23.7% year-over-year (1)
  • The Company generated approximately $1.1 million in cash flow from operations, a decrease of $1.5 million year-over-year
  • Cash and cash equivalents totaled $24.2 million, an increase of $1.2 million compared to the Dec. 31, 2012, ending cash balance
  • The year-over-year decline in earnings and cash flow was the expected result of increased investments in new products, sales and marketing, and activity surrounding recently settled patent litigation

“Our solid business fundamentals continue to produce outstanding results, including new records in total orders and backlog and strong growth of new first year orders year-over-year. We are pleased with our continued success in email encryption and excited to provide updates on our new solutions. ZixDLP was delivered on time and on budget, with customer contracts signed even before the March 29 launch. Our BYOD solution is on schedule and currently in beta testing with customers. The progress on our new products combined with our steady results in email encryption position ZixCorp to achieve its goals for the full year,” said Rick Spurr, ZixCorp's Chairman and Chief Executive Officer.

First Quarter 2013 Corporate Financial Summary and Other Operational Metrics

$ in Millions, except per share and % data    

Q1
2013

 

Q1
2012

 

% or $
Change (1)

Revenue     $ 11.8     $ 10.3     14.2 %
GAAP Gross Profit     $ 9.8     $ 8.4     16.4 %
GAAP Net Income     $ 0.6     $ 2.4     (76.6 )%
GAAP Net Income Per Share – Diluted     $ 0.01     $ 0.04     (76.0 )%

Non-GAAP Adjusted Gross Profit (2)

    $ 9.9     $ 8.5     16.5 %
Non-GAAP Adjusted Net Income (2)     $ 2.1     $ 2.9     (25.7 )%
Non-GAAP Adjusted Net Income Per Share-Diluted (2)     $ 0.03     $ 0.04     (23.7 )%
Adjusted EBITDA (2) (3)     $ 2.5     $ 3.3     (23.9 )%
Adjusted EBITDA Margin (2) (3)       21.6 %     32.4 %   (10.8 )pt
New First Year Orders     $ 2.1     $ 1.7     21.7 %
Total Orders     $ 13.9     $ 9.1     53.3 %
Bookings Backlog (4)     $ 59.6     $ 52.3     13.9 %
       
(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 ZixCorp's investor relations Web site 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 Highlights

  • ZixCorp launched ZixDLP TM to address business's greatest source of data loss - email. By focusing strictly on email, ZixCorp provides a straightforward DLP approach that decreases the cost, reduces deployment time from months to hours and minimizes impact on customer resources and workflow. As expected, ZixDLP was commercially available on March 29, 2013, and is deployable as an add-on for existing ZixCorp customers or as a bundle or standalone for new customers.
  • ZixCorp grew its replacement wins in 2012 by 80% year-over-year. Examples of companies that replaced their existing solution with ZixCorp ® Email Encryption Services include Axium Healthcare Pharmacy, Credit Union of Texas, Emdeon and High Desert Medical Group.

Outlook

For the second quarter 2013, the Company forecasts revenue to be between $11.5 million and $11.7 million and fully diluted adjusted earnings per share to be $0.03 to $0.04. For the full year 2013, the Company reaffirms previously issued revenue guidance of $48 million to $50 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, Apr. 23, 2013, at 5 p.m. ET. A live webcast of the conference call will be available on the Company's investor relations Web site at http://investor.zixcorp.com. Alternatively, participants can access the conference call by dialing 1-877-415-3183 (U.S. toll-free) or 1-857-244-7326 (international) at least 15 minutes before the call and entering access code 38609716. An audio replay of the conference will be available until May 1, 2013, by dialing 1-888-286-8010 (U.S. toll-free) or 1-617-801-6888 (international) and entering the access code 72196649. An archive for 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, ZixCorp's ability to obtain and retain customers, grow revenues and deliver new products. 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 CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
March 31,
2013 December 31,
(unaudited) 2012
ASSETS
Current assets:
Cash and cash equivalents $ 24,208,000 $ 22,988,000
Receivables, net 1,675,000 967,000
Prepaid and other current assets 1,473,000 1,697,000
Deferred tax assets   1,604,000   1,600,000
Total current assets 28,960,000 27,252,000
Property and equipment, net 2,264,000 2,384,000
Goodwill 2,161,000 2,161,000
Deferred tax assets 51,018,000 51,052,000
Other assets   -   -
Total assets $ 84,403,000 $ 82,849,000
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,306,000 $ 3,156,000
Deferred revenue   17,427,000   17,470,000
Total current liabilities 20,733,000 20,626,000
Long-term liabilities: - -
Deferred revenue 1,005,000 902,000
Deferred rent   59,000   76,000
Total long-term liabilities   1,064,000   978,000
Total liabilities 21,797,000 21,604,000
Total stockholders' equity   62,606,000   61,245,000
Total liabilities and stockholders' equity $ 84,403,000 $ 82,849,000
     
 
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended March 31,
2013 2012
Revenue $ 11,764,000 $ 10,301,000
 
Cost of revenue   1,936,000     1,855,000  
Gross profit 9,828,000 8,446,000
Operating expenses:
Research and development 2,611,000 1,477,000
Selling, general and administrative   6,616,000     4,330,000  
Total operating expenses   9,227,000     5,807,000  
 
Operating income 601,000 2,639,000
Operating margin 5 % 26 %
 
Other income, net 60,000 5,000
 
Income before income taxes 661,000 2,644,000
Income tax expense   (94,000 )   (218,000 )
Net income $ 567,000   $ 2,426,000  
 
Basic income per common share: $ 0.01   $ 0.04  
 
 
Diluted income per common share: $ 0.01   $ 0.04  
 
Shares used in per share calculation - basic   60,977,582     63,022,777  
 
Shares used in per share calculation - diluted   62,032,258     63,764,735  
     
 
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 

Three Months Ended March 31,

2013 2012
Operating activities:
Net income $ 567,000 $ 2,426,000
Non-cash items in net income 786,000 608,000
Changes in operating assets and liabilities   (275,000 )   (501,000 )
Net cash provided by operating activities 1,078,000 2,533,000
 
Investing activities:
Purchases of property and equipment   (250,000 )   (228,000 )
Net cash used in investing activities (250,000 ) (228,000 )
 
Financing activities:
Proceeds from exercise of stock options 392,000 19,000
Proceeds from exercise of warrants - -
Payment of license subscription note payable - -
Purchase of Treasury Stock   -     (4,998,000 )
Net cash used in financing activities   392,000     (4,979,000 )
 
Increase (Decrease) in cash and cash equivalents 1,220,000 (2,674,000 )
Cash and cash equivalents, beginning of period   22,988,000     20,680,000  
Cash and cash equivalents, end of period $ 24,208,000   $ 18,006,000  
   
 
ZIX CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited)
   
Three Months Ended
March 31,
2013 2012
Revenue:
GAAP revenue $ 11,764,000   $ 10,301,000  
 
Cost of revenue
GAAP cost of revenue $ 1,936,000 $ 1,855,000
Stock-based compensation charges (1) (A)   (42,000 )   (25,000 )
Non-GAAP adjusted cost of revenue $ 1,894,000   $ 1,830,000  
 
Gross profit:
GAAP gross profit $ 9,828,000 $ 8,446,000
Stock-based compensation charges (1) (A)   42,000     25,000  
Non-GAAP adjusted gross profit $ 9,870,000   $ 8,471,000  
 
Research and development expense
GAAP research and development expense $ 2,611,000 $ 1,477,000
Stock-based compensation charges (1) (A)   (51,000 )   (21,000 )
Non-GAAP adjusted research and development expense $ 2,560,000   $ 1,456,000  
 
Selling and marketing expense

GAAP selling and marketing expense

$ 3,610,000 $ 2,531,000
Stock-based compensation charges (1) (A)   (121,000 )   (62,000 )
Non-GAAP adjusted selling and marketing expense $ 3,489,000   $ 2,469,000  
 
General and administrative expense
GAAP general and administrative expense $ 3,006,000 $ 1,799,000
Stock-based compensation charges (1) (A) (188,000 ) (99,000 )
Non-recurring litigation costs (2) (B)   (1,126,000 )   (158,000 )
Non-GAAP adjusted general and administrative expense $ 1,692,000   $ 1,542,000  
 
Operating income:
GAAP operating income $ 601,000 $ 2,639,000
Stock-based compensation charges (1) (A) 402,000 207,000
Non-recurring litigation costs (2) (B)   1,126,000     158,000  
Non-GAAP adjusted operating income $ 2,129,000   $ 3,004,000  
Adjusted Operating Margin 18.1 % 29.2 %
 
Net income:
GAAP net income $ 567,000 $ 2,426,000
Stock-based compensation charges (1) (A) 402,000 207,000
Non-recurring litigation costs (2) (B) 1,126,000 158,000
Income tax impact (C)   29,000     69,000  
Non-GAAP adjusted net income $ 2,124,000   $ 2,860,000  
 
Diluted net income per common share:
GAAP net income $ 0.01 $ 0.04
Adjustments per share (A-C) $ 0.02   $ 0.00  
Non-GAAP adjusted net income $ 0.03   $ 0.04  
Shares used to compute Non-GAAP adjusted net income per share - diluted   62,032,258     63,764,735  
 
Reconciliation of Net income to EBITDA and Adjusted EBITDA: (D)
Net income $ 567,000 $ 2,426,000
Income tax provision 94,000 218,000
Interest expense - -
Depreciation expense   355,000     333,000  
EBITDA 1,016,000 2,977,000
 
Adjustments:
Share-based compensation expense (A) 402,000 207,000
Non-recurring litigation costs (B)   1,126,000     158,000  
Adjusted EBITDA $ 2,544,000   $ 3,342,000  
Adjusted EBITDA margin 21.6 % 32.4 %
 
(1) Stock-based compensation charges are included as follows:
Cost of revenues $ 42,000 $ 25,000
Research and development 51,000 21,000
Selling and marketing 121,000 62,000
General and administrative   188,000     99,000  
$ 402,000   $ 207,000  
(2) Non-recurring litigation costs are included as follows:
General and administrative   1,126,000     158,000  
$ 1,126,000   $ 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 CORPORATION
NOTES 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, restricted stock, and restricted stock units awarded to employees 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.

ZixCorp
Investor Relations:
Todd Kehrli, 323-468-2300
zixi@mkr-group.com
or
Public Relations:
Taylor Stansbury, 214-370-2134
tstansbury@zixcorp.com

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