Company meets high-end of earnings guidance with non-GAAP net
income of $0.04 per share
Zix Corporation (ZixCorp), (Nasdaq: ZIXI), a leader in
email data protection, today announced financial results for the
third quarter ended Sept. 30, 2014.
Third Quarter 2014 Financial Highlights
- Ending backlog of $68.8 million, an
increase of 7.2% year-over-year and the Company’s 10th consecutive
quarterly record in backlog
- Third quarter new first year orders of
$1.6 million, a decrease of 25.2% year-over-year
- Third quarter revenue of $12.7 million,
an increase of 3.9% year-over-year
- Third quarter Non-GAAP net income of
$0.04 per share, a decrease of 26.4% year-over-year (1) (3); the
decrease reflects planned investments in sales and marketing and
non-cash federal income tax
- Third quarter GAAP net income of $0.02
per share, a decrease of 60.5% year-over-year (1)
- The Company generated approximately
$4.7 million in cash flow from operations, a decrease of $1.5
million year-over-year
- Cash and cash equivalents totaled $20.3
million, a decrease of $12.6 million compared to the Sept. 30,
2013, ending cash balance; the decrease resulted from the
completion of a $15 million share repurchase program in Nov. 2013
and the completion of a $10 million share repurchase program in
Sept. 2014
“Although we did not deliver the third quarter new sales results
we expected, we believe the level of activity for email encryption
will rebound in the fourth quarter. We’ll continue to build on our
strong base in the healthcare and financial services industries
while we increase our presence in new market segments with ZixOne.
We like the growth opportunities we see for our base business and
ZixOne in the coming quarters,” said Rick Spurr, ZixCorp’s
Chairman and Chief Executive Officer.
Third Quarter 2014 Corporate Financial
Summary and Other Operational Metrics
$ in Millions, except per share and % data
Q32014
Q32013
% or $Change (1)
Revenue
$ 12.7
$ 12.2 3.9 % GAAP
Gross Profit
$ 10.6
$ 10.3 3.1
% GAAP Net Income
$ 1.2
$ 3.2 (63.4
)% GAAP Net Income Per Share – Diluted
$ 0.02 $ 0.05
(60.5 )% Non-GAAP Adjusted Gross
Profit(2)
$ 10.7
$ 10.4 3.1 %
Non-GAAP Adjusted Net Income (2)
$ 2.5
$ 3.7
(31.8 )% Non-GAAP Adjusted Net Income Per
Share-Diluted (2)
$ 0.04
$ 0.06 (26.4
)% Adjusted EBITDA (2) (3)
$ 3.1
$ 4.2
(26.2 )% Adjusted EBITDA Margin (2) (3)
24.3 % 34.2
% (9.9 )pt New First Year Orders
$ 1.6 $
2.2 (25.2 )% Total Orders
$ 13.4 $
13.0 2.9 % Bookings
Backlog (4)
$ 68.8
$ 64.2 7.2 %
(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 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 announced and completed an
approved share repurchase program. Funded from cash from
operations, the company purchased $10 million of its shares of
common stock, during the third quarter.
Outlook
For the fourth quarter 2014, the Company forecasts revenue to be
between $12.8 million and $13.1 million and Non-GAAP fully diluted
adjusted earnings per share to be between $0.03 and $0.04. For the
full year, the company forecasts revenue to be between $50 million
and $51 million and fully diluted Non-GAAP adjusted earnings per
share to be between $0.15 and $0.16.
Conference Call Information
The Company will discuss its financial results and outlook on a
conference call on Tuesday, Oct. 21, 2014, at 5:00 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
1-800-688-0836 (U.S. toll-free) or 1-617-614-4072 (international)
at least 15 minutes before the call and entering access code
92019150. An audio replay of the conference will be available until
Oct. 29, 2014, by dialing 1-888-286-8010 (U.S. toll-free) or
1-617-801-6888 (international) and entering the access code
38508583. An archive for 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 September 30,
2014 December 31, (unaudited) 2013
ASSETS Current assets: Cash and cash equivalents $
20,262,000 $ 27,518,000 Receivables, net 2,313,000 2,324,000
Prepaid and other current assets 1,748,000 2,038,000 Deferred tax
assets 1,361,000 1,814,000 Total current assets
25,684,000 33,694,000 Property and equipment, net 3,823,000
2,608,000 Goodwill 2,161,000 2,161,000 Deferred tax assets
51,023,000 52,239,000 Total assets $ 82,691,000 $ 90,702,000
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
liabilities: Accounts payable and accrued expenses $ 3,710,000 $
2,487,000 Deferred revenue 21,733,000 19,080,000
Total current liabilities 25,443,000 21,567,000 Long-term
liabilities: Deferred revenue 959,000 1,278,000 Deferred rent
1,561,000 1,623,000 Total long-term liabilities
2,520,000 2,901,000 Total liabilities 27,963,000
24,468,000 Total stockholders’ equity 54,728,000
66,234,000 Total liabilities and stockholders’ equity $ 82,691,000
$ 90,702,000
ZIX CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended September
30,
Nine Months Ended September 30, 2014
2013 2014
2013 Revenue $ 12,705,000 $ 12,225,000 $ 37,482,000 $
35,827,000 Cost of revenue 2,062,000
1,904,000 6,119,000 5,743,000
Gross profit 10,643,000 10,321,000 31,363,000 30,084,000 Operating
expenses: Research and development 2,234,000 2,345,000 6,653,000
7,444,000 Selling, general and administrative 6,544,000
4,659,000 19,611,000
16,807,000 Total operating expenses 8,778,000
7,004,000 26,264,000 24,251,000
Operating income 1,865,000 3,317,000 5,099,000
5,833,000 Operating margin 15 % 27 % 14 % 16 % Other income,
net 66,000 17,000 140,000 141,000 Income before income taxes
1,931,000 3,334,000 5,239,000 5,974,000 Income tax benefit
(expense) (768,000 ) (159,000 ) (2,040,000 )
(361,000 ) Net income $ 1,163,000 $ 3,175,000
$ 3,199,000 $ 5,613,000 Basic income per
common share: $ 0.02 $ 0.05 $ 0.05 $ 0.09
Diluted income per common share: $ 0.02
$ 0.05 $ 0.05 $ 0.09 Shares used in per
share calculation - basic 57,610,386
61,378,131 58,510,426 61,172,708
Shares used in per share calculation - diluted
58,501,937 63,065,762 59,613,658
62,517,989
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30,
2014 2013 Operating
activities: Net income $ 3,199,000 $ 5,613,000 Non-cash items in
net income 4,213,000 2,465,000 Changes in operating assets and
liabilities 3,168,000 1,698,000 Net
cash provided by operating activities 10,580,000 9,776,000
Investing activities: Purchases of property and equipment
(1,797,000 ) (1,262,000 ) Net cash used in investing
activities (1,797,000 ) (1,262,000 ) Financing activities:
Proceeds from exercise of stock options 457,000 1,494,000 Purchase
of Treasury Stock (16,496,000 ) (120,000 ) Net cash
used in financing activities (16,039,000 ) 1,374,000
Increase (Decrease) in cash and cash equivalents
(7,256,000 ) 9,888,000 Cash and cash equivalents, beginning of
period 27,518,000 22,988,000 Cash and
cash equivalents, end of period $ 20,262,000 $ 32,876,000
ZIX CORPORATION RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES (Unaudited)
Three Months Ended
Nine Months Ended September 30, September 30,
2014 2013
2014 2013 Revenue: GAAP revenue
$ 12,705,000 $ 12,225,000 $ 37,482,000 $
35,827,000 Cost of revenue GAAP cost of revenue $
2,062,000 $ 1,904,000 $ 6,119,000 $ 5,743,000 Stock-based
compensation charges (1) (A) (45,000 ) (46,000 )
(146,000 ) (133,000 ) Non-GAAP adjusted cost of
revenue $ 2,017,000 $ 1,858,000 $ 5,973,000 $
5,610,000 Gross profit: GAAP gross profit $
10,643,000 $ 10,321,000 $ 31,363,000 $ 30,084,000 Stock-based
compensation charges (1) (A) 45,000 46,000
146,000 133,000 Non-GAAP
adjusted gross profit $ 10,688,000 $ 10,367,000 $
31,509,000 $ 30,217,000 Research and
development expense GAAP research and development expense $
2,234,000 $ 2,345,000 $ 6,653,000 $ 7,444,000 Stock-based
compensation charges (1) (A) (61,000 ) (56,000 )
(185,000 ) (162,000 ) Non-GAAP adjusted research and
development expense $ 2,173,000 $ 2,289,000 $
6,468,000 $ 7,282,000 Selling and marketing
expense GAAP selling and marketing expense $ 4,543,000 $ 3,088,000
$ 13,473,000 $ 10,338,000 Stock-based compensation charges (1) (A)
(131,000 ) (134,000 ) (425,000 )
(386,000 ) Non-GAAP adjusted selling and marketing expense $
4,412,000 $ 2,954,000 $ 13,048,000 $ 9,952,000
General and administrative expense GAAP general and
administrative expense $ 2,001,000 $ 1,571,000 $ 6,138,000 $
6,469,000 Stock-based compensation charges (1) (A) (181,000 )
(216,000 ) (579,000 ) (618,000 ) Non-recurring consulting and legal
costs (2) (B) (327,000 ) (33,000 ) (596,000 )
(1,286,000 ) Non-GAAP adjusted general and administrative
expense $ 1,493,000 $ 1,322,000 $ 4,963,000 $
4,565,000 Operating income: GAAP operating income $
1,865,000 $ 3,317,000 $ 5,099,000 $ 5,833,000 Stock-based
compensation charges (1) (A) 418,000 452,000 1,335,000 1,299,000
Non-recurring consulting and legal costs (2) (B) 327,000
33,000 596,000 1,286,000
Non-GAAP adjusted operating income $ 2,610,000 $
3,802,000 $ 7,030,000 $ 8,418,000 $ - Adjusted
Operating Margin 20.5 % 31.1 % 18.8 % 23.5 % Net
income: GAAP net income $ 1,163,000 $ 3,175,000 $ 3,199,000 $
5,613,000 Stock-based compensation charges (1) (A) 418,000 452,000
1,335,000 1,299,000 Non-recurring consulting and legal costs (2)
(B) 327,000 33,000 596,000 1,286,000 Income tax impact (C)
609,000 29,000 1,670,000
88,000 Non-GAAP adjusted net income $ 2,517,000 $
3,689,000 $ 6,800,000 $ 8,286,000
Diluted net income per common share: GAAP net income $ 0.02
$ 0.05 $ 0.05 $ 0.09 Adjustments per share (A-C) $ 0.02 $
0.01 $ 0.06 $ 0.04 Non-GAAP adjusted net
income $ 0.04 $ 0.06 $ 0.11 $ 0.13
Shares used to compute Non-GAAP adjusted net income per
share - diluted 58,501,937 63,065,762
59,613,658 62,517,989
Reconciliation of Net income to EBITDA and Adjusted EBITDA:
(D) Net income $ 1,163,000 $ 3,175,000 $ 3,199,000 $ 5,613,000
Income tax provision 768,000 159,000 2,040,000 361,000 Interest
expense - - - - Depreciation expense 415,000
367,000 1,209,000 1,078,000
EBITDA 2,346,000 3,701,000 6,448,000 7,052,000
Adjustments: Share-based compensation expense (A) 418,000
452,000 1,335,000 1,299,000 Non-recurring consulting and legal
costs (2) (B) 327,000 33,000
596,000 1,286,000
Adjusted EBITDA $
3,091,000 $ 4,186,000 $ 8,379,000 $ 9,637,000
Adjusted EBITDA margin 24.3 % 34.2 % 22.4 % 26.9 %
(1) Stock-based compensation charges are included as
follows: Cost of revenues $ 45,000 $ 46,000 $ 146,000 $ 133,000
Research and development 61,000 56,000 185,000 162,000 Selling and
marketing 131,000 134,000 425,000 386,000 General and
administrative 181,000 216,000
579,000 618,000 $ 418,000 $ 452,000
$ 1,335,000 $ 1,299,000 (2) Non-recurring
consulting and legal costs are included as follows: General and
administrative 327,000 33,000
596,000 1,286,000 $ 327,000 $ 33,000
$ 596,000 $ 1,286,000
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 consulting and legal
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, restricted stock units, and
performance 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 consulting and legal costs. See item (2) on
previous page for breakdown of non-recurring consulting and legal
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 RelationsTodd Kehrli or Jim Byers,
323-468-2300zixi@mkr-group.comorPublic RelationsTaylor Stansbury
Johnson, 214-370-2134tjohnson@zixcorp.com
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