Quarterly Report (10-q)

Date : 08/07/2018 @ 1:19PM
Source : Edgar (US Regulatory)
Stock : Zix Corp. (ZIXI)
Quote : 5.43  -0.03 (-0.55%) @ 12:55PM

Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 0-17995

 

ZIX CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Texas

 

75-2216818

(State of Incorporation)

 

(I.R.S. Employer Identification Number)

 

2711 North Haskell Avenue

Suite 2200, LB 36

Dallas, Texas 75204-2960

(Address of Principal Executive Offices)

(214) 370-2000

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act            

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at August 3, 2018

Common Stock, par value $0.01 per share

 

54,164,608

 

 

 


 

INDEX

 

 

 

 

 

Page

Number

PART I — FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2018 (unaudited) and December 31, 2017

 

3

 

 

Condensed Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2018  and 2017

 

4

 

 

Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the six months ended June 30, 2018

 

5

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2018 and 2017

 

6

 

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4.

 

Controls and Procedures

 

24

PART II — OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

25

Item 1A.

 

Risk Factors

 

25

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

Item 3.

 

Defaults Upon Senior Securities

 

25

Item 4.

 

Mine Safety Disclosures

 

25

Item 5.

 

Other Information

 

25

Item 6.

 

Exhibits

 

26

 

2


 

ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share and par value data)

 

June 30,

2018

 

 

December 31,

2017

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,696

 

 

$

33,009

 

Receivables, net

 

 

2,296

 

 

 

1,389

 

Prepaid and other current assets

 

 

2,978

 

 

 

3,222

 

Total current assets

 

 

22,970

 

 

 

37,620

 

Property and equipment, net

 

 

4,212

 

 

 

4,048

 

Other assets and deferred costs

 

 

7,920

 

 

 

 

Intangible assets, net

 

 

14,467

 

 

 

5,524

 

Goodwill

 

 

13,494

 

 

 

8,469

 

Deferred tax assets

 

 

22,340

 

 

 

25,647

 

Total assets

 

$

85,403

 

 

$

81,308

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,201

 

 

$

1,053

 

Accrued expenses

 

 

7,742

 

 

 

6,101

 

Deferred revenue

 

 

24,082

 

 

 

28,362

 

Total current liabilities

 

 

33,025

 

 

 

35,516

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

 

3,966

 

 

 

1,087

 

Deferred rent

 

 

1,095

 

 

 

1,185

 

Total long-term liabilities

 

 

5,061

 

 

 

2,272

 

Total liabilities

 

 

38,086

 

 

 

37,788

 

Commitments and contingencies (see Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $1 par value, 10,000,000 shares authorized; none issued and

   outstanding

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 81,688,734

   issued and 54,167,688 outstanding in 2018 and 80,709,970 issued and 54,542,612

   outstanding in 2017

 

 

778

 

 

 

778

 

Additional paid-in capital

 

 

382,962

 

 

 

381,457

 

Treasury stock, at cost; 27,521,046 common shares in 2018 and 26,167,358

   common shares in 2017

 

 

(108,347

)

 

 

(102,343

)

Accumulated deficit

 

 

(228,076

)

 

 

(236,372

)

Total stockholders’ equity

 

 

47,317

 

 

 

43,520

 

Total liabilities and stockholders’ equity

 

$

85,403

 

 

$

81,308

 

 

See notes to condensed consolidated financial statements.

 

3


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands, except share and per share data)

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

$

17,500

 

 

$

16,378

 

 

$

34,153

 

 

$

32,271

 

Cost of revenues

 

 

3,806

 

 

 

3,247

 

 

 

7,319

 

 

 

6,070

 

Gross margin

 

 

13,694

 

 

 

13,131

 

 

 

26,834

 

 

 

26,201

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,978

 

 

 

2,708

 

 

 

5,956

 

 

 

5,131

 

Selling, general and administrative

 

 

8,562

 

 

 

7,783

 

 

 

16,115

 

 

 

15,768

 

Total operating expenses

 

 

11,540

 

 

 

10,491

 

 

 

22,071

 

 

 

20,899

 

Operating income

 

 

2,154

 

 

 

2,640

 

 

 

4,763

 

 

 

5,302

 

Other income, net

 

 

360

 

 

 

66

 

 

 

479

 

 

 

145

 

Income before income taxes

 

 

2,514

 

 

 

2,706

 

 

 

5,242

 

 

 

5,447

 

Income tax expense

 

 

(674

)

 

 

(1,567

)

 

 

(1,510

)

 

 

(2,533

)

Net income

 

$

1,840

 

 

$

1,139

 

 

$

3,732

 

 

$

2,914

 

Basic income per common share

 

$

0.04

 

 

$

0.02

 

 

$

0.07

 

 

$

0.05

 

Diluted income per common share

 

$

0.03

 

 

$

0.02

 

 

$

0.07

 

 

$

0.05

 

Basic weighted average common shares outstanding

 

 

52,467,904

 

 

 

53,573,431

 

 

 

52,670,540

 

 

 

53,268,005

 

Diluted weighted average common shares outstanding

 

 

53,217,100

 

 

 

54,479,963

 

 

 

53,347,976

 

 

 

54,075,003

 

 

See notes to condensed consolidated financial statements.

 

4


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Stockholders’ Equity

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Total

Stockholders’

 

(In thousands, except shares)

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Equity

 

Balances, January 1, 2018, as reported

 

 

80,709,970

 

 

$

778

 

 

$

381,457

 

 

$

(102,343

)

 

$

(236,372

)

 

$

43,520

 

Cumulative effect adjustment from

   changes in accounting standards, net

   of taxes (see Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,564

 

 

 

4,564

 

Balances, January 1, 2018, as adjusted

 

 

80,709,970

 

 

 

778

 

 

 

381,457

 

 

 

(102,343

)

 

 

(231,808

)

 

 

48,084

 

Net issuance of common stock upon

   exercise of stock options

 

 

27,080

 

 

 

 

 

 

 

33

 

 

 

 

 

 

 

 

 

 

 

33

 

Net issuance of common stock upon

   vesting of restricted stock units

 

 

50,751

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of common stock upon

   vesting of performance stock units

 

 

32,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted common

   stock

 

 

772,322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted

   performance common stock

 

 

95,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based

   compensation costs

 

 

 

 

 

 

 

 

1,472

 

 

 

(611

)

 

 

 

 

 

861

 

Treasury repurchase program

 

 

 

 

 

 

 

 

 

 

 

(5,393

)

 

 

 

 

 

(5,393

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,732

 

 

 

3,732

 

Balances, June 30, 2018

 

 

81,688,734

 

 

$

778

 

 

$

382,962

 

 

$

(108,347

)

 

$

(228,076

)

 

$

47,317

 

 

See notes to condensed consolidated financial statements.

 

5


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended June 30,

 

(In thousands)

 

2018

 

 

2017

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

3,732

 

 

$

2,914

 

Non-cash items in net income:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,681

 

 

 

1,296

 

Employee stock-based compensation costs

 

 

1,472

 

 

 

1,279

 

Changes in deferred taxes

 

 

1,691

 

 

 

2,231

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(484

)

 

 

460

 

Prepaid and other current assets

 

 

312

 

 

 

(9

)

Other assets and deferred costs

 

 

(1,740

)

 

 

 

Accounts payable

 

 

107

 

 

 

322

 

Deferred revenue

 

 

(2,222

)

 

 

(414

)

Earn-out payment

 

 

(195

)

 

 

 

Accrued and other liabilities

 

 

49

 

 

 

(797

)

Net cash provided by operating activities

 

 

4,403

 

 

 

7,282

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property, equipment and internal-use software

 

 

(1,367

)

 

 

(1,266

)

Acquisition of business, net of cash acquired

 

 

(11,773

)

 

 

(6,594

)

Net cash used in investing activities

 

 

(13,140

)

 

 

(7,860

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

33

 

 

 

4,128

 

Earn-out payment

 

 

(605

)

 

 

 

Purchase of treasury shares

 

 

(6,004

)

 

 

(499

)

Net cash used in financing activities

 

 

(6,576

)

 

 

3,629

 

(Decrease) Increase in cash and cash equivalents

 

 

(15,313

)

 

 

3,051

 

Cash and cash equivalents, beginning of period

 

 

33,009

 

 

 

26,457

 

Cash and cash equivalents, end of period

 

$

17,696

 

 

$

29,508

 

 

See notes to condensed consolidated financial statements.

 

 

6


 

ZIX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Basis of Presentation

The accompanying condensed consolidated financial statements of Zix Corporation (“Zix” the “Company,” “we,” “our,” or “us”) should be read in conjunction with the audited consolidated financial statements included in the Company’s 2017 Annual Report on Form 10-K. These financial statements are unaudited, but have been prepared in the ordinary course of business for the purpose of providing information with respect to the covered interim periods.

Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective transition method. The cumulative effect of applying the standard was a $4.6 million increase to shareholder’s equity as of January 1, 2018. The Company’s condensed consolidated statement of income for the three and six month period ended June 30, 2018, and the Company’s condensed consolidated balance sheet at June 30, 2018, are presented under ASC 606, while the Company’s condensed consolidated statement of income for the three and six month period ended June 30, 2017, and the Company’s condensed consolidated balance sheet at December 31, 2017, are presented under ASC 605, Revenue Recognition (“ASC 605”). See note 2 for disclosure of the impact of the adoption of ASC 606 on the Company’s condensed consolidated statement of income for the three and six month periods ended June 30, 2018, and the Company’s condensed consolidated balance sheet at June 30, 2018, and the effect of changes made to the Company’s consolidated balance sheet as of January 1, 2018.

Management of the Company believes that all adjustments necessary for a fair presentation for such periods have been included and are of a normal recurring nature. The results of operations for the three and six month periods ended June 30, 2018, are not necessarily indicative of the results to be expected for any future periods or for the full fiscal year.

 

 

2. Recent Accounting Standards and Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASC 606, which supersedes most prior revenue recognition guidance under U.S. Generally Accepted Accounting Principles (“GAAP”). The core principle of ASC 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASC 606 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.

The standard became effective for us beginning in 2018. Our Company provides primarily email encryption and advanced threat protection security solutions as subscription services in which we recognize revenue as our services are rendered. We determined our revenue was not materially impacted by the new guidance. However, the guidance did require us to increase the amortization period of our sales commission expense. We applied the guidance to commissions earned on all contracts that were not complete as of January 1, 2018. Prior period amounts have not been adjusted and continue to be reported in accordance with the previous guidance. Our Company elected to use a portfolio approach, applying 8 year, 4 year, and 18 month amortization periods to our new, add-on, and renewal sales commission expenses, respectively. Determination of the amortization period and the subsequent assessment for impairment of the deferred cost asset requires significant judgement.

We applied a modified retrospective approach to our implementation of ASC 606 in which we recognized a $4.6 million cumulative effect adjustment to our 2018 retained earnings opening balance related to our increased amortization period. This adjustment includes a $1.6 million impact to our deferred tax asset. The table below presents the cumulative effect of the changes made to our condensed consolidated balance sheet due to the adoption of ASC 606:

 

(In thousands)

 

January 1, 2018

 

 

 

Beginning

Balance

 

 

Cumulative

Effect

Adjustment

 

 

Beginning

Balance, as

Adjusted

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid and other current assets

 

$

3,222

 

 

$

(415

)

 

$

2,807

 

Other assets and deferred costs

 

 

 

 

 

6,595

 

 

 

6,595

 

Deferred tax assets

 

 

25,647

 

 

 

(1,616

)

 

 

24,031

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(236,372

)

 

$

4,564

 

 

$

(231,808

)

7


 

 

Financial statement results as reported under the new revenue standard as compared to the previous standard for the three and six months ended and as of June 30, 2018, are as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

(In thousands, except per share data)

 

Under

ASC 605

 

 

Under

ASC 606

 

 

Variance (1)

 

 

Under

ASC 605

 

 

Under

ASC 606

 

 

Variance

 

 

Revenues

 

$

17,500

 

 

$

17,500

 

 

$

 

 

$

34,153

 

 

$

34,153

 

 

$

 

 

Cost of revenues

 

 

3,806

 

 

 

3,806

 

 

 

 

 

 

7,319

 

 

 

7,319

 

 

 

 

 

Gross margin

 

 

13,694

 

 

 

13,694

 

 

 

 

 

 

26,834

 

 

 

26,834

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,978

 

 

 

2,978

 

 

 

 

 

 

5,956

 

 

 

5,956

 

 

 

 

 

Selling, general and administrative

 

 

9,298

 

 

 

8,562

 

 

 

(736

)

 

 

17,389

 

 

 

16,115

 

 

 

(1,274

)

 

Total operating expenses

 

 

12,276

 

 

 

11,540

 

 

 

(736

)

 

 

23,345

 

 

 

22,071

 

 

 

(1,274

)

 

Operating income

 

 

1,418

 

 

 

2,154

 

 

 

736

 

 

 

3,489

 

 

 

4,763

 

 

 

1,274

 

 

Other income, net

 

 

360

 

 

 

360

 

 

 

 

 

 

479

 

 

 

479

 

 

 

 

 

Income before income taxes

 

 

1,778

 

 

 

2,514

 

 

 

736

 

 

 

3,968

 

 

 

5,242

 

 

 

1,274

 

 

Income tax expense

 

 

(519

)

 

 

(674

)

 

 

(155

)

 

 

(1,242

)

 

 

(1,510

)

 

 

(268

)

 

Net income

 

$

1,259

 

 

$

1,840

 

 

$

581

 

 

$

2,726

 

 

$

3,732

 

 

$

1,006

 

 

Basic income per common share

 

$

0.02

 

 

$

0.04

 

 

$

0.01

 

 

$

0.05

 

 

$

0.07

 

 

$

0.02

 

 

Diluted income per common share

 

$

0.02

 

 

$

0.03

 

 

$

0.01

 

 

$

0.05

 

 

$

0.07

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Per share variance may not foot due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

June 30, 2018

 

 

 

Under

ASC 605

 

 

Under

ASC 606

 

 

Variance

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid and other current assets

 

$

3,444

 

 

$

2,978

 

 

$

(466

)

Other assets and deferred costs

 

 

 

 

 

7,920

 

 

 

7,920

 

Deferred tax assets

 

 

23,956

 

 

 

22,340

 

 

 

(1,616

)

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(233,646

)

 

$

(228,076

)

 

$

5,570

 

 

Cash Flow Statement

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), which amends guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU was issued with the intent to reduce diversity in practice with respect to eight types of cash flows. The new guidance addressed debt prepayment or extinguishment of costs, settlement of zero-coupon bonds, contingent consideration made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle.

The standard became effective for us beginning 2018. We applied the new guidance within our condensed consolidated statements of cash flows classification to an $800 thousand earn-out payment associated with our Greenview Data acquisition. Because this consideration payment was not made soon after the consummation date, as required by the guidance, we classified $605 thousand of the payment as a financing activity. This reflects the portion of the payment recognized a contingent liability as of the acquisition date. The $195 thousand balance of the payment was in excess of the original contingent consideration liability and was classified as an operating activity. The standard had no other impact to our condensed consolidated financial statements.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which introduces a lessee model that brings most leases on the balance sheet. The new ASU eliminates the requirement in U.S. GAAP that entities use bright-line tests in determining

8


 

lease classifications and requires lessors to provide additional transparency into their exposure to the changes in value of their residual assets and how they manage that exposure.

The standard is effective for us beginning 2019. We expect the valuation of right to use assets and lease liabilities to be the present value of our forecasted future lease commitments and are assessing the discount rate to be applied in these valuations. We are currently evaluating the potential impact of this new guidance on our consolidated financial statements.

 

 

3. Stock- Based Awards and Stock-Based Employee Compensation Expense

Our stock-based awards include (i) stock options, (ii) restricted stock awards, some of which are subject to time-based vesting (“Restricted Stock”) and some of which are subject to performance-based vesting (“Performance Stock”), and (iii) restricted stock units, some of which are subject to time-based vesting (“RSUs”) and some of which are subject to performance-based vesting (“Performance RSUs”). As of June 30, 2018 the Company had 987,234 stock options outstanding, 1,503,855 non-vested Restricted Stock awards; 211,182 non-vested Performance Stock awards; 72,168 non-vested RSUs; 12,499 non-vested Performance RSUs and 5,850,004 shares of common stock available for grant.

Stock Option Activity    

The following is a summary of all stock option transactions during the three months ended June 30, 2018:

 

 

 

Options

 

 

Weighted

Average

Exercise Price

 

 

Weighted Average

Remaining

Contractual Term

(Yrs)

 

Outstanding at March 31, 2018

 

 

1,014,314

 

 

$

3.10

 

 

 

 

 

Granted at market price

 

 

 

 

 

 

 

 

 

 

Cancelled or expired

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(27,080

)

 

 

1.22

 

 

 

 

 

Outstanding at June 30, 2018

 

 

987,234

 

 

$

3.16

 

 

 

5.06

 

Options exercisable at June 30, 2018

 

 

843,484

 

 

$

3.06

 

 

 

4.59

 

 

At June 30, 2018, all 987,234 stock options outstanding and all 843,484 stock options exercisable had an exercise price lower than the market price of the Company’s common stock on that date. The aggregate intrinsic value of these stock options were $2.2 million and $2.0 million, respectively.        

Restricted Stock Activity

The following is a summary of Restricted Stock activity during the three months ended June 30, 2018:

 

 

 

Restricted

Shares

 

 

Weighted

Average

Fair Value

 

Non-vested restricted stock at March 31, 2018

 

 

1,162,143

 

 

$

4.33

 

Granted at market price

 

 

405,000

 

 

 

5.10

 

Vested

 

 

(60,288

)

 

 

4.20

 

Cancelled

 

 

(3,000

)

 

 

4.04

 

Non-vested restricted stock at June 30, 2018

 

 

1,503,855

 

 

$

4.54

 

 

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Restricted Stock Unit Activity

The following is a summary of all RSU activity during the three months ended June 30, 2018:

 

 

 

Restricted

Stock Units

 

 

Weighted

Average

Fair Value

 

Non-vested restricted stock units at March 31, 2018

 

 

52,168

 

 

$

4.42

 

Granted at market price

 

 

20,000

 

 

 

5.01

 

Vested

 

 

 

 

 

 

Cancelled

 

 

 

 

 

 

Non-vested restricted stock units at June 30, 2018

 

 

72,168

 

 

$

4.59

 

 

Performance RSU Activity

The following is a summary of all Performance RSU activity during the three months ended June 30, 2018:

 

 

 

Performance

RSUs

 

 

Weighted

Average

Fair Value

 

Non-vested performance RSUs at March 31, 2018

 

 

12,499

 

 

$

4.20

 

Granted at market price

 

 

 

 

 

 

Vested

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Non-vested performance RSUs at June 30, 2018

 

 

12,499

 

 

$

4.20

 

 

Performance Stock Activity

The following is a summary of all Performance Stock activity during the three months ended June 30, 2018:

 

 

 

Performance

Stock

 

 

Weighted

Average

Fair Value

 

Non-vested performance stock at March 31, 2018

 

 

211,182

 

 

$

4.25

 

Granted at market price

 

 

 

 

 

 

Vested

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Non-vested performance stock at June 30, 2018

 

 

211,182

 

 

$

4.25

 

 

The weighted average grant-date fair value of awards of Restricted Stock, RSUs, Performance RSUs and Performance Stock is based on the quoted market price of the Company’s common stock on the date of grant.

Stock-Based Compensation Expense

For the three month period ended June 30, 2018, the total stock-based employee compensation expense resulting from stock options, Restricted Stock, RSUs, Performance RSUs and Performance Stock was recorded to the following line items of the Company’s condensed consolidated statements of income:

 

(In thousands)

 

Three Months

Ended June 30,

2018

 

 

Six Months

Ended June 30,

2018

 

Cost of revenues

 

$

80

 

 

$

148

 

Research and development

 

 

112

 

 

 

202

 

Selling, general and administrative

 

 

653

 

 

 

1,122

 

Stock-based compensation expense

 

$

845

 

 

$

1,472

 

 

A deferred tax asset totaling $293 thousand and $374 thousand, resulting from stock-based compensation expense associated with awards relating to the Company’s U.S. operations, was recorded for the six month periods ended June 30, 2018 and 2017, respectively. As of June 30, 2018, there was $7.2 million of total unrecognized stock-based compensation expense related to non-

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vested stock-based compensation awards granted under the incentive plans. This expense is expected to be recognized over a weighted average period of 1.62 years.

For additional information regarding the Company’s Equity Awards and Stock-based Employee Compensation, see Note 3 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

 

 

4. Supplemental Cash Flow Information

Supplemental cash flow information relating to taxes and non-cash activities:

 

 

 

Six Months Ended June 30,

 

(In thousands)

 

2018

 

 

2017

 

Cash income tax payments

 

$

556

 

 

$

349

 

 

 

5. Receivables, net

 

(In thousands)

 

June 30,

2018

 

 

December 31,

2017

 

Gross accounts receivables

 

$

15,400

 

 

$

9,307

 

Allowance for returns and doubtful accounts

 

 

(279

)

 

 

(270

)

Unpaid portion of deferred revenue

 

 

(12,825

)

 

 

(7,648

)

Note receivable

 

 

458

 

 

 

458

 

Allowance for note receivable

 

 

(458

)

 

 

(458

)

Receivables, net

 

$

2,296

 

 

$

1,389

 

 

The allowance for doubtful accounts includes all specific accounts receivable which we believe are likely not collectible based on known information. In addition, we record 2.5% of all accounts receivable greater than 90 days past due, net of those accounts specifically reserved, as a general allowance against accounts that could potentially become uncollectible.

The reduction for the unpaid portion of deferred revenue represents future customer service or maintenance obligations which have been billed to customers, but remain unpaid as of the respective balance sheet dates. Deferred revenue on our consolidated balance sheets represents future customer service or maintenance obligations which have been billed and collected as of the respective balance sheet dates.

The note receivable represents the remaining outstanding balance of an original note related to the sale of a product line in 2005 in the amount of $540 thousand. This was fully reserved at the time of the sale as the note’s collectability was not assured. The note receivable is fully reserved at June 30, 2018.

 

 

6. Revenue from Contracts with Customers

Accounting policies

Our Company provides message security solutions as subscription services in which we recognize revenue as our services are rendered. Our contracts are typically one to three year contracts billed annually. We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by our company from a customer  (e.g., sales, use, value added, and some excise taxes).  

Disaggregation of Revenue