Rebound in New First Year Orders for Email Encryption and
Growing Contribution from New Products Lead to Strong Finish in
2014
Zix Corporation (NASDAQ: ZIXI), a leader in email data
protection, today announced financial results for the fourth
quarter and full year ended Dec. 31, 2014.
Fourth Quarter 2014 Financial Highlights
- Fourth quarter new first year orders of
$2.5 million, an increase of 8.0% year-over-year
- Fourth quarter revenue of $12.9
million, an increase of 4.5% year-over-year
- Fourth quarter GAAP net income of $0.02
per share, a decrease of 79.5% year-over-year (1)
- Fourth quarter Non-GAAP net income of
$0.03 per share, a decrease of 42.9% year-over-year (1) (3)
- The Company generated approximately
$2.7 million in cash flow from operations, a decrease of $785
thousand year-over-year
Full-Year 2014 Financial Highlights
- Ending backlog of $69.3 million, an
increase of 5.5% from the prior year end and the Company’s 11th
consecutive quarterly record in backlog
- Full-year new first year orders of $8.5
million, a decrease of 5.9% year-over-year
- Full-year revenue of $50.3 million, an
increase of 4.6% year-over-year
- Full-year GAAP net income of $0.07 per
share, a decrease of 58.4% year-over-year (1)
- Full-year Non-GAAP net income of $0.15
per share, a decrease of 23.0% year-over-year(1) (3)
- The Company generated approximately
$13.3 million in cash flow from operations for the full year ended
Dec. 31, 2014, flat year-over-year
- Cash and cash equivalents at year-end
was $21.7 million, despite $16.2 million spent on share repurchases
during 2014. This $21.7 million is a decrease of $5.8 million
compared to the ending cash balance for 2013
“We were pleased to conclude 2014 with strong New First Year
Orders as well as meeting our full-year guidance in revenue and
earnings. As anticipated, New First Year Orders for email
encryption bounced back in the fourth quarter and achieved
year-over-year growth. We also saw continued increase in the
contribution to New First Year Orders from our new products ZixOne
and ZixDLP, which in the fourth quarter represented 12% of our New
First Year Orders. We believe ZixOne and ZixDLP will have a
meaningful impact on accelerating our revenue growth in the
long-term,” said Rick Spurr, ZixCorp’s Chief Executive
Officer. “With a successful fourth quarter, the strength of our
pipeline for email encryption and the increasing interest in our
new products, we are optimistic about the opportunity for stronger
revenue growth in 2015.”
Fourth Quarter and Full-Year 2014
Corporate Financial Summary and Other Operational Metrics
$ in Millions, except per share data
Q42014
Q42013
% or $
Change (2)
FY2014
FY2013
% or $
Change (2)
Revenue
12.9 $12.3
4.5% $50.3
$48.1 4.6% GAAP Gross Profit
10.7 $10.4
2.1% $42.0 $40.5
3.7% GAAP Net Income (1)
$0.9 $4.8 (81.3)%
$4.1 $10.5
(60.7)% GAAP Net Income Per Share – Diluted (1)
$0.02 $0.08
(79.5)% $0.07
$0.17 (58.4)% Non-GAAP Adjusted Gross
Profit (3)
10.7 $10.5
2.1% $42.2
$40.7 3.7% Non-GAAP Adjusted Net Income
(3)
$2.0 $3.8
(47.9)% $8.8
$12.1 (27.4)% Non-GAAP Adjusted Net
Income Per Share – Diluted (3)
$0.03
$0.06 (42.9)%
$0.15 $0.19
(23.0)% Adjusted EBITDA (3) (4)
$2.5
$4.3 (43.0)%
$10.8 $13.9
(22.3)% Adjusted EBITDA Margin (3) (4)
19.1% 35.0%
(15.9)pts 21.5%
29.0% (7.5)pts New First Year Orders
$2.5 $2.3
8.0% $8.5 $9.0
(5.9)% Total Orders
$13.8
$14.1 (1.9)%
$55.4 $56.6
(2.1)% Backlog (5)
$69.3
$65.7 5.5%
(1) 2013 fourth
quarter and full year Net Income benefitted from adjustment of the
Company’s deferred tax asset valuation allowance as required by
accounting guidance. No such adjustment was necessary in 2014
resulting in higher GAAP income tax expense. In fourth quarter 2014
income tax expense increased $2.2 million compared to the same
period last year and full year 2014, income tax expense increased
$3.8 million compared to the same periods in 2013. (2) Changes are
based on actuals versus numbers shown in the columns which may
reflect rounding (3)
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
(4) Adjusted earnings before interest, taxes, depreciation and
amortization (5) Service contract commitments that represent future
revenue to be recognized as the services are provided
Outlook
For the first quarter 2015, the Company forecasts revenue to be
between $12.9 million and $13.1 million and fully diluted adjusted
earnings per share to be between $0.03 and $0.04. Full-year 2015
revenues are projected to be between $54 million and $56 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
$0.21.
Conference Call Information
The Company will discuss its financial results and outlook on a
conference call on Tuesday, Feb. 17, 2015, 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
1-800-901-5241 (U.S. toll-free) or 1-617-786-2963 (international)
at least 15 minutes before the call and entering access code
86863655.
An audio replay of the conference will be available until Feb.
24, 2015, by dialing 1-888-286-8010 (U.S. toll-free) or
1-617-801-6888 (international) and entering the access code
95134973. 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 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
December 31, 2014 December 31,
(unaudited) 2013 ASSETS Current assets: Cash
and cash equivalents $ 21,685,000 $ 27,518,000 Receivables, net
1,452,000 2,324,000 Prepaid and other current assets 2,372,000
2,038,000 Deferred tax assets 1,763,000 1,814,000
Total current assets 27,272,000 33,694,000 Property and equipment,
net 4,399,000 2,608,000 Goodwill 2,161,000 2,161,000 Deferred tax
assets 49,892,000 52,239,000 Total assets $
83,724,000 $ 90,702,000
LIABILITIES AND
STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and
accrued expenses $ 3,436,000 $ 2,487,000 Deferred revenue
21,587,000 19,080,000 Total current liabilities 25,023,000
21,567,000 Long-term liabilities: Deferred revenue 898,000
1,278,000 Deferred rent 1,533,000 1,623,000 Total
long-term liabilities 2,431,000 2,901,000 Total
liabilities 27,454,000 24,468,000 Total stockholders’ equity
56,270,000 66,234,000 Total liabilities and stockholders’
equity $ 83,724,000 $ 90,702,000
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended December 31,
Twelve Months Ended December
31,
2014 2013 2014 2013 Revenue $
12,865,000 $ 12,311,000 $ 50,347,000 $ 48,138,000 Cost of
revenue 2,205,000 1,871,000
8,324,000 7,614,000 Gross profit 10,660,000
10,440,000 42,023,000 40,524,000 Operating expenses: Research and
development 2,398,000 2,119,000 9,051,000 9,563,000 Selling,
general and administrative 6,611,000 4,839,000
26,222,000 21,646,000 Total
operating expenses 9,009,000 6,958,000
35,273,000 31,209,000 Operating
income 1,651,000 3,482,000 6,750,000 9,315,000
Operating margin
13 % 28 % 13 % 19 % Other income, net 43,000 (9,000 )
183,000 132,000 Income before income taxes 1,694,000
3,473,000 6,933,000 9,447,000 Income tax benefit (expense)
(790,000 ) 1,367,000 (2,830,000 )
1,006,000 Net income $ 904,000 $ 4,840,000 $
4,103,000 $ 10,453,000 Basic income per common
share: $ 0.02 $ 0.08 $ 0.07 $ 0.17
Diluted income per common share: $ 0.02 $ 0.08
$ 0.07 $ 0.17 Shares used in per share
calculation - basic 56,282,492 61,039,115
57,948,864 61,139,035
Shares used in per share calculation - diluted 57,043,838
62,553,160 58,966,625
62,526,507
ZIX CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Twelve Months Ended December
31,
2014 2013 Operating activities: Net income $
4,103,000 $ 10,453,000 Non-cash items in net income 5,702,000
1,776,000 Changes in operating assets and liabilities
3,512,000 1,069,000 Net cash provided by
operating activities 13,317,000 13,298,000 Investing
activities: Purchases of property and equipment (3,402,000 )
(1,593,000 ) Net cash used in investing activities
(3,402,000 ) (1,593,000 ) Financing activities: Proceeds
from exercise of stock options 748,000 1,705,000 Purchase of
Treasury Stock (16,496,000 ) (8,880,000 ) Net cash
used in financing activities (15,748,000 ) (7,175,000
) Increase (Decrease) in cash and cash equivalents
(5,833,000 ) 4,530,000 Cash and cash equivalents, beginning of
period 27,518,000 22,988,000 Cash and
cash equivalents, end of period $ 21,685,000 $ 27,518,000
ZIX CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2014 2013 2014 2013 Revenue: GAAP
revenue $ 12,865,000 $ 12,311,000 $ 50,347,000
$ 48,138,000 Cost of revenue GAAP cost of revenue $
2,205,000 $ 1,871,000 $ 8,324,000 $ 7,614,000 Stock-based
compensation charges (1) (A) (34,000 ) (38,000 )
(180,000 ) (172,000 ) Non-GAAP adjusted cost of
revenue $ 2,171,000 $ 1,833,000 $ 8,144,000 $
7,442,000 Gross profit: GAAP gross profit $
10,660,000 $ 10,440,000 $ 42,023,000 $ 40,524,000 Stock-based
compensation charges (1) (A) 34,000 38,000
180,000 172,000 Non-GAAP
adjusted gross profit $ 10,694,000 $ 10,478,000 $
42,203,000 $ 40,696,000 Research and
development expense GAAP research and development expense $
2,398,000 $ 2,119,000 $ 9,051,000 $ 9,563,000 Stock-based
compensation charges (1) (A) (51,000 ) (51,000 )
(236,000 ) (212,000 ) Non-GAAP adjusted research and
development expense $ 2,347,000 $ 2,068,000 $
8,815,000 $ 9,351,000 Selling and marketing
expense GAAP selling and marketing expense $ 4,811,000 $ 3,078,000
$ 18,284,000 $ 13,416,000 Stock-based compensation charges (1) (A)
(107,000 ) (122,000 ) (532,000 )
(507,000 ) Non-GAAP adjusted selling and marketing expense $
4,704,000 $ 2,956,000 $ 17,752,000 $
12,909,000 General and administrative expense GAAP
general and administrative expense $ 1,800,000 $ 1,761,000 $
7,938,000 $ 8,230,000 Stock-based compensation charges (1) (A)
(155,000 ) (202,000 ) (734,000 ) (820,000 ) Non-recurring
consulting and legal costs (2) (B) (3,000 ) (38,000 )
(599,000 ) (1,324,000 ) Non-GAAP adjusted general and
administrative expense $ 1,642,000 $ 1,521,000 $
6,605,000 $ 6,086,000 Operating income: GAAP
operating income $ 1,651,000 $ 3,482,000 $ 6,750,000 $ 9,315,000
Stock-based compensation charges (1) (A) 347,000 413,000 1,682,000
1,711,000 Non-recurring consulting and legal costs (2) (B)
3,000 38,000 599,000
1,324,000 Non-GAAP adjusted operating income $ 2,001,000
$ 3,933,000 $ 9,031,000 $ 12,350,000
Adjusted Operating Margin 15.6 % 31.9 % 17.9 % 25.7 %
Net income: GAAP net income $ 904,000 $ 4,840,000 $ 4,103,000 $
10,453,000 Stock-based compensation charges (1) (A) 347,000 413,000
1,682,000 1,711,000 Non-recurring consulting and legal costs (2)
(B) 3,000 38,000 599,000 1,324,000 Income tax impact (C)
726,000 (1,489,000 ) 2,396,000
(1,401,000 ) Non-GAAP adjusted net income $ 1,980,000 $
3,802,000 $ 8,780,000 $ 12,087,000
Diluted net income per common share: GAAP net income $ 0.02
$ 0.08 $ 0.07 $ 0.17 Adjustments per share (A-C) $ 0.02 $
(0.02 ) $ 0.08 $ 0.02 Non-GAAP adjusted net income $
0.03 $ 0.06 $ 0.15 $ 0.19 Shares
used to compute Non-GAAP adjusted net income per share - diluted
57,043,838 62,553,160 58,966,625
62,526,507
Reconciliation of Net
income to EBITDA and Adjusted EBITDA: (D) Net income $ 904,000
$ 4,840,000 $ 4,103,000 $ 10,453,000 Income tax provision 790,000
(1,367,000 ) 2,830,000 (1,006,000 ) Interest expense - - - -
Depreciation expense 413,000 388,000
1,622,000 1,466,000 EBITDA 2,107,000
3,861,000 8,555,000 10,913,000
Adjustments:
Share-based compensation expense (A) 347,000 413,000 1,682,000
1,711,000 Non-recurring consulting and legal costs (2) (B)
3,000 38,000 599,000
1,324,000
Adjusted EBITDA $ 2,457,000 $
4,312,000 $ 10,836,000 $ 13,948,000
Adjusted EBITDA margin 19.1 % 35.0 % 21.5 % 29.0 % (1)
Stock-based compensation charges are included as follows: Cost of
revenues $ 34,000 $ 38,000 $ 180,000 $ 172,000 Research and
development 51,000 51,000 236,000 212,000 Selling and marketing
107,000 122,000 532,000 507,000 General and administrative
155,000 202,000 734,000
820,000 $ 347,000 $ 413,000 $ 1,682,000
$ 1,711,000 (2) Non-recurring consulting and legal costs are
included as follows: General and administrative 3,000
38,000 599,000 1,324,000
$ 3,000 $ 38,000 $ 599,000 $ 1,324,000
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 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.com
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