Backlog increases 11 percent year-over-year to nearly $66
million
Zix Corporation (NASDAQ: ZIXI), a leader in email data
protection, today announced financial results for the first quarter
ended March 31, 2014.
First Quarter 2014 Financial Highlights
- Ending backlog of $65.9 million, an
increase of 10.6% year-over-year and the Company’s 8th consecutive
quarterly record in backlog
- First quarter new first year orders of
$2.0 million, down 5.3% year-over-year
- First quarter revenue of $12.2 million,
an increase of 3.4% year-over-year
- First quarter GAAP net income of $0.02
per share, an increase of 90.5% year-over-year (1)
- First quarter Non-GAAP net income of
$0.03 per share, an increase of 1.2% year-over-year (1) (3)
- The Company generated approximately
$1.7 million in cash flow from operations, an increase of $0.7
million year-over-year
- Cash and cash equivalents totaled $22.5
million, a decrease of $1.7 million compared to the Mar. 31, 2013,
ending cash balance, and included the purchase of $6.2 million of
its shares of common stock, completing the approved share
repurchase program announced in November 2013
“We remain confident in the continued solid growth of our email
encryption business and continue to be excited about the prospects
for accelerated growth due to our new products,” said Rick
Spurr, ZixCorp’s Chairman and Chief Executive Officer. “With
the positive traction we are seeing with our increasing marketing
efforts, the volume of marketing leads for our new BYOD product is
at the highest level we’ve ever seen. We expect improved sales
productivity and results through the remainder of the year.”
First Quarter 2014 Corporate Financial Summary and Other
Operational Metrics
$ in Millions, except per share data
Q12014
Q12013
% or $
Change (1)
Revenue
$12.2 $11.8
3.4% GAAP Gross Profit
$10.1 $9.8 3.1%
GAAP Net Income
$1.1 $0.6
86.9% GAAP Net Income Per Share – Diluted
$0.02 $0.01
90.5% Non-GAAP Adjusted Gross Profit (2)
$10.2 $9.9 3.2%
Non-GAAP Adjusted Net Income (2)
$2.1
$2.1 (0.7)% Non-GAAP Adjusted
Net Income Per Share – Diluted (2)
$0.03
$0.03 1.2% Adjusted
EBITDA (2) (3)
$2.6 $2.5
3.1% Adjusted EBITDA Margin (2) (3)
21.6% 21.6%
(0.1)pts New First Year Orders
$2.0
$2.1 (5.3)% Total Orders
$12.5 $13.9
(10.0)% Backlog (4)
$65.9
$59.6 10.6%
(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 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
First Quarter Business Highlights
- First United Security Bank (FUSB)
selected ZixOneTM to enable its employees to use
personal mobile devices for work, also known as
Bring-Your-Own-Device (BYOD). By providing access to corporate
email through ZixOne and not allowing that corporate data to reside
on the device, FUSB enhances employee productivity, reduces
liability risks and protects corporate data without hindering
employee convenience or privacy.
Outlook
For the second quarter 2014, the Company forecasts revenue to be
between $12.3 million and $12.6 million and fully diluted adjusted
earnings per share to be between $0.02 and $0.03. For the full year
2014, the company’s previously issued revenue guidance of $53
million to $55 million and fully diluted Non-GAAP adjusted earnings
per share of $0.15 to $0.17 remains unchanged.
As previously announced with full-year guidance, the Company
increased its investment in sales and marketing beginning in the
first quarter of 2014. These investments are aimed at increasing
momentum of ZixOne in the BYOD market and to further expand
adoption of our email encryption and data loss prevention (DLP)
solutions. The new sales benefits from these investments, if
successful, would begin in 2014 while much of the revenue benefits
would be deferred until 2015 due to revenue recognition timing of
the Company’s subscription model.
Conference Call Information
The Company will discuss its financial results and outlook on a
conference call on Tuesday, April 22, 2014, 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
1-866-510-0707 (U.S. toll-free) or 1-617-597-5376 (international)
at least 15 minutes before the call and entering access code
80292270.
An audio replay of the conference will be available until April
29, 2014, by dialing 1-888-286-8010 (U.S. toll-free) or
1-617-801-6888 (international) and entering the access code
47085808. An archive of the webcast will also be available on the
ZixCorp investor relations Web site.
About Zix Corporation
ZixCorp is a leader in email data protection. ZixCorp offers
industry-leading email encryption, a unique email DLP solution and
an innovative email BYOD 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 sales, 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 market acceptance of
new ZixCorp solutions and how privacy and data security laws may
affect demand for ZixCorp email data protection solutions. 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, 2014
December 31, (unaudited) 2013 ASSETS
Current assets: Cash and cash equivalents $ 22,498,000 $ 27,518,000
Receivables, net 2,402,000 2,324,000 Prepaid and other current
assets 1,650,000 2,038,000 Deferred tax assets 1,395,000
1,814,000 Total current assets 27,945,000 33,694,000
Property and equipment, net 2,561,000 2,608,000 Goodwill 2,161,000
2,161,000 Deferred tax assets 52,122,000 52,239,000
Total assets $ 84,789,000 $ 90,702,000
LIABILITIES
AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable
and accrued expenses $ 2,793,000 $ 2,487,000 Deferred revenue
17,880,000 19,080,000 Total current liabilities
20,673,000 21,567,000 Long-term liabilities: Deferred revenue
1,102,000 1,278,000 Deferred rent 1,602,000 1,623,000
Total long-term liabilities 2,704,000 2,901,000 Total
liabilities 23,377,000 24,468,000 Total stockholders’ equity
61,412,000 66,234,000 Total liabilities and stockholders’
equity $ 84,789,000 $ 90,702,000
ZIX
CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited)
Three
Months Ended March 31, 2014 2013 Revenue $
12,162,000 $ 11,764,000 Cost of revenue 2,025,000
1,936,000 Gross profit 10,137,000 9,828,000
Operating expenses: Research and development 2,201,000 2,611,000
Selling, general and administrative 6,289,000
6,616,000 Total operating expenses 8,490,000
9,227,000 Operating income 1,647,000 601,000
Operating margin 14 % 5 % Other income, net 62,000 60,000
Income before income taxes 1,709,000 661,000 Income tax
benefit (expense) (650,000 ) (94,000 ) Net income $
1,059,000 $ 567,000 Basic income per common
share: $ 0.02 $ 0.01 Diluted income per
common share: $ 0.02 $ 0.01 Shares used in per
share calculation - basic 59,375,283
60,977,582 Shares used in per share calculation -
diluted 60,891,563 62,032,258
ZIX CORPORATION CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (Unaudited)
Three
Months Ended March 31, 2014 2013 Operating
activities: Net income $ 1,059,000 $ 567,000 Non-cash items in net
income 1,417,000 786,000 Changes in operating assets and
liabilities (743,000 ) (275,000 ) Net cash provided
by operating activities 1,733,000 1,078,000 Investing
activities: Purchases of property and equipment (391,000 )
(250,000 ) Net cash used in investing activities (391,000 )
(250,000 ) Financing activities: Proceeds from exercise of
stock options 41,000 392,000 Purchase of Treasury Stock
(6,403,000 ) - Net cash used in financing activities
(6,362,000 ) 392,000 Increase
(Decrease) in cash and cash equivalents (5,020,000 ) 1,220,000 Cash
and cash equivalents, beginning of period 27,518,000
22,988,000 Cash and cash equivalents, end of period $
22,498,000 $ 24,208,000
ZIX
CORPORATION RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
MEASURES (Unaudited)
Three
Months Ended March 31, 2014 2013 Revenue:
GAAP revenue $ 12,162,000 $ 11,764,000 Cost of
revenue GAAP cost of revenue $ 2,025,000 $ 1,936,000 Stock-based
compensation charges (1) (51,000 ) (42,000 ) Non-GAAP
adjusted cost of revenue $ 1,974,000 $ 1,894,000
Gross profit: GAAP gross profit $ 10,137,000 $ 9,828,000
Stock-based compensation charges (1) 51,000
42,000 Non-GAAP adjusted gross profit $ 10,188,000 $
9,870,000 Research and development expense GAAP
research and development expense $ 2,201,000 $ 2,611,000
Stock-based compensation charges (1) (60,000 )
(51,000 ) Non-GAAP adjusted research and development expense $
2,141,000 $ 2,560,000 Selling and marketing
expense GAAP selling and marketing expense $ 4,217,000 $ 3,610,000
Stock-based compensation charges (1) (144,000 )
(121,000 ) Non-GAAP adjusted selling and marketing expense $
4,073,000 $ 3,489,000 General and
administrative expense GAAP general and administrative expense $
2,072,000 $ 3,006,000 Stock-based compensation charges (1) (225,000
) (188,000 ) Non-recurring litigation costs (2) (33,000 )
(1,126,000 ) Non-GAAP adjusted general and administrative
expense $ 1,814,000 $ 1,692,000 Operating
income: GAAP operating income $ 1,647,000 $ 601,000 Stock-based
compensation charges (1) 480,000 402,000 Non-recurring litigation
costs (2) 33,000 1,126,000 Non-GAAP
adjusted operating income $ 2,160,000 $ 2,129,000
Adjusted Operating Margin
17.8
%
18.1
%
Net income: GAAP net income $ 1,059,000 $ 567,000
Stock-based compensation charges (1) 480,000 402,000 Non-recurring
litigation costs (2) 33,000 1,126,000 Income tax impact
536,000 29,000 Non-GAAP adjusted net income $
2,108,000 $ 2,124,000 Diluted net income per
common share: GAAP net income $ 0.02 $ 0.01 Adjustments per share $
0.01 $ 0.02 Non-GAAP adjusted net income $ 0.03
$ 0.03 Shares used to compute Non-GAAP
adjusted net income per share - diluted 60,891,563
62,032,258
Reconciliation of Net income to
EBITDA and Adjusted EBITDA: Net income $ 1,059,000 $ 567,000
Income tax provision 650,000 94,000 Interest expense - -
Depreciation expense 399,000 355,000
EBITDA 2,108,000 1,016,000
Adjustments: Share-based
compensation expense 480,000 402,000 Non-recurring litigation costs
33,000 1,126,000
Adjusted EBITDA
$ 2,621,000 $ 2,544,000 Adjusted EBITDA margin
21.6 % 21.6 % (1) Stock-based compensation charges are
included as follows: Cost of revenues $ 51,000 $ 42,000 Research
and development 60,000 51,000 Selling and marketing 144,000 121,000
General and administrative 225,000 188,000
$ 480,000 $ 402,000 (2) Non-recurring
litigation costs are included as follows: General and
administrative 33,000 1,126,000 $
33,000 $ 1,126,000
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, restricted stock, and restricted stock units awarded
to 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 ContactsInvestor Relations:Todd Kehrli or Jim
Byers, 323-468-2300zixi@mkr-group.comorPublic Relations:Taylor
Stansbury Johnson, 214-370-2134tjohnson@zixcorp.com
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