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8-K - FORM 8-K - ZIX CORP | d83771e8vk.htm |
Exhibit 99.1
News Release | For Distribution |
Zix Corporation Exceeds Guidance for Q2 Revenue and EPS
DALLAS July 26, 2011 Zix Corporation (NASDAQ: ZIXI), the leader in email encryption
services, today announced financial results for the second quarter ended June 30, 2011.
Second Quarter 2011 Financial Highlights
| The Company achieved second quarter revenue from continuing operations of $9.4 million, an increase of 15%, year-over-year | ||
| Second quarter GAAP net income of $0.04 per share, an increase of 72%, year-over-year (1) | ||
| Second quarter Non-GAAP net income of $0.04 per share, an increase of 24%, year-over-year | ||
| Cash flow from operations for the second quarter of $2.5 million, an increase of $0.7 million, year-over-year | ||
| Cash, cash equivalents and commercial paper investments totaling $17.1 million, a decrease of $0.4 million compared to the ending cash balance for the second quarter last year |
We are proud to have delivered another solid quarter of growth for ZixCorp shareholders, said
Rick Spurr, ZixCorps Chairman and Chief Executive Officer. Our growth and market leadership are
the result of product excellence, a well-earned reputation for quality and service and a continued
focus on execution.
Second Quarter 2011 Corporate Financial Summary and Other Operational Metrics
Q2 | Q2 | % or $ | ||||||||||
$ in Millions, except per share data | 2011 | 2010 | Change(1) | |||||||||
Revenue (2) |
$ | 9.4 | $ | 8.2 | 15 | % | ||||||
GAAP Gross Profit (2) |
$ | 7.7 | $ | 6.6 | 16 | % | ||||||
GAAP Net Income |
$ | 2.6 | $ | 1.5 | 74 | % | ||||||
GAAP Net Income Per Share Diluted |
$ | 0.04 | $ | 0.02 | 72 | % | ||||||
Non-GAAP Adjusted Gross Profit (2) (3) |
$ | 7.7 | $ | 6.7 | 15 | % | ||||||
Non-GAAP Adjusted Net Income (3) |
$ | 2.7 | $ | 2.2 | 25 | % | ||||||
Non-GAAP Adjusted Net Income Per Share-Diluted (3) |
$ | 0.04 | $ | 0.03 | 24 | % |
Q2 | Q2 | % or $ | ||||||||||
$ in Millions, except per share data | 2011 | 2010 | Change(1) | |||||||||
Adjusted EBITDA (3) (4) |
$ | 3.0 | $ | 2.6 | 17 | % | ||||||
Adjusted EBITDA Margin (3) (4) |
32.3 | % | 31.7 | % | 0.6 pts | |||||||
Email Encryption New First Year Orders |
$ | 2.0 | $ | 2.1 | (3 | %) | ||||||
Email Encryption Total Orders |
$ | 12.5 | $ | 9.6 | 30 | % | ||||||
Email Encryption Bookings Backlog (5) |
$ | 52.6 | $ | 45.6 | 15 | % |
(1) | Changes reported are based on actual results, and numbers shown in the columns may reflect rounding | |
(2) | Amounts indicated are from continuing operations | |
(3) | A reconciliation of GAAP to Non-GAAP adjusted results is attached to this press release and is 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 |
Business Highlights
| Taher Elgamal, Ph.D. was elected to the Companys board of directors. Dr. Elgamal has served on the boards of several public and private companies. He is the founder of IdentityMind, Inc. and currently serves as CSO for Axway, Inc. He has also held executive roles at Tumbleweed Communications, Securify, Inc. and Netscape Communications. | |
| ZixCorp broadened its strength in channel partners with the addition of Azaleos and Paragon Development Systems. | |
| ZixCorp announced ZixAccessTM, a new inbound email decryption. With ZixAccess on their network, recipients can experience transparent email decryption with ZixCorp customers. Recipients can also benefit from easy scanning and archiving of messages sent in the clear and reports of outbound email risks to security or compliance officers. | |
| ZixCorp offers secure email integration with Microsoft Office 365, a cloud-hosted application suite. ZixCorp enables easy integration by leveraging Microsofts Outbound Smarthost Connector capability to route email from the Microsoft hosted email service to ZixCorp® Email Encryption Services. | |
| Recognizing an opportunity to meet an increasing need for secure email, Pen Publishing selected ZixCorp® Email Encryption Services to enhance its current services and protect sensitive data in email for its customers. Pen Publishing is a managed security service provider (MSSP) with ZixCorp. |
| Replacing its legacy vendor, Members 1st Federal Credit Union switched to ZixCorp® Email Encryption Services. Members 1st Federal Credit Union chose ZixCorp based on the power of the 27 million member ZixDirectory® email encryption community. | |
| ZixCorp signed a three-year renewal agreement with Austin Bank. ZixCorp will continue to provide email encryption for Austin Banks 30 banking locations, enabling secure email with all customers and business partners. | |
| ZixCorp renewed its distribution agreement with xDefenders, Inc. in a three-year agreement. xDefenders is a managed security service provider (MSSP) and has offered the complete product line of ZixCorp® Email Encryption Services, including ZixGateway® and ZixMail®, since 2005. |
Outlook
The Company forecasts revenue for the third quarter of 2011 to be between $9.5 and $9.7 million and
fully diluted adjusted earnings per share of $0.04. For the full year 2011, the Company reaffirms
previously issued revenue guidance of $38 to $40 million and fully diluted adjusted earnings per
share of $0.14 to $0.16.
Conference Call Information
The Company will discuss its financial results and outlook on a conference call on Tuesday, July
26, 2011, 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 1-800-510-9834 (U.S. toll-free) or 1-617-614-3669 (international) at
least 15 minutes before the call and entering access code 21148521. An audio replay of the
conference will be available until Aug. 2, 2011, by dialing 1-888-286-8010 (U.S. toll-free) or
1-617-801-6888 (international) and entering the access code 83141146. An archive for the webcast
will also be available on the ZixCorp investor relations Web site.
About Zix Corporation
Zix Corporation (ZixCorp) provides the only email encryption services designed with your most
important relationships in mind. Many of the most influential companies and government
organizations use the proven ZixCorp® Email Encryption Services, including
WellPoint, Humana, the SEC, and more than 1,200 hospitals and 1,500 financial institutions. ZixCorp
Email Encryption Services are powered by ZixDirectory®, the largest email
encryption community in the world. The tens of millions of ZixDirectory members can feel secure
knowing their most important relationships are protected. For more information, visit
www.zixcorp.com.
SOURCE Zix Corporation
Contacts
ZixCorp Investor Relations: Charles Messman (323) 468-2300, zixi@mkr-group.com
Public Relations: Taylor Stansbury (214) 370-2134, tstansbury@zixcorp.com
Statements in this release that are not purely historical facts or that necessarily depend upon
future events, including statements about forecasts of new orders, 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 law mandates may affect demand
for email encryption and ZixCorps ability to obtain and retain customers and grow revenues.
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
ZixCorps most recent filing on Form 10-K with the Securities and Exchange Commission.
ZIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, | ||||||||
2011 | December 31, | |||||||
(unaudited) | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 14,829,000 | $ | 24,619,000 | ||||
Commercial paper |
2,290,000 | | ||||||
Receivables, net |
1,084,000 | 1,344,000 | ||||||
Prepaid and other current assets |
1,462,000 | 1,115,000 | ||||||
Deferred tax assets |
815,000 | 1,056,000 | ||||||
Total current assets |
20,480,000 | 28,134,000 | ||||||
Property and equipment, net |
2,296,000 | 2,209,000 | ||||||
Goodwill |
2,161,000 | 2,161,000 | ||||||
Deferred tax assets |
34,542,000 | 34,304,000 | ||||||
Other assets |
| 44,000 | ||||||
Total assets |
$ | 59,479,000 | $ | 66,852,000 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 2,607,000 | $ | 2,844,000 | ||||
Deferred revenue |
16,102,000 | 15,331,000 | ||||||
License subscription note payable |
118,000 | 137,000 | ||||||
Total current liabilities |
18,827,000 | 18,312,000 | ||||||
Long-term liabilities: |
||||||||
Deferred revenue |
952,000 | 1,439,000 | ||||||
License subscription note payable, non-current |
| 49,000 | ||||||
Deferred rent |
159,000 | 165,000 | ||||||
Total long-term liabilities |
1,111,000 | 1,653,000 | ||||||
Total liabilities |
19,938,000 | 19,965,000 | ||||||
Total stockholders equity |
39,541,000 | 46,887,000 | ||||||
Total liabilities and stockholders equity |
$ | 59,479,000 | $ | 66,852,000 | ||||
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
$ | 9,431,000 | $ | 8,194,000 | $ | 18,702,000 | $ | 15,673,000 | ||||||||
Cost of revenues |
1,756,000 | 1,570,000 | 3,573,000 | 3,072,000 | ||||||||||||
Gross profit |
7,675,000 | 6,624,000 | 15,129,000 | 12,601,000 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
1,292,000 | 1,248,000 | 2,605,000 | 2,556,000 | ||||||||||||
Selling, general and administrative |
3,796,000 | 3,988,000 | 7,556,000 | 8,216,000 | ||||||||||||
Total operating expenses |
5,088,000 | 5,236,000 | 10,161,000 | 10,772,000 | ||||||||||||
Operating income |
2,587,000 | 1,388,000 | 4,968,000 | 1,829,000 | ||||||||||||
Operating margin |
27 | % | 17 | % | 27 | % | 12 | % | ||||||||
Other income, net |
19,000 | 15,000 | 61,000 | 44,000 | ||||||||||||
Income from continuing operations before income taxes |
2,606,000 | 1,403,000 | 5,029,000 | 1,873,000 | ||||||||||||
Income tax (expense) benefit |
11,000 | (24,000 | ) | (13,000 | ) | 30,000 | ||||||||||
Income from continuing operations |
2,617,000 | 1,379,000 | 5,016,000 | 1,903,000 | ||||||||||||
Discontinued operations |
||||||||||||||||
Income from operations of discontinued e-Prescribing segment |
| 188,000 | | 478,000 | ||||||||||||
Income tax expense |
| (66,000 | ) | | (168,000 | ) | ||||||||||
Income on discontinued operations (Note 1) |
| 122,000 | | 310,000 | ||||||||||||
Net income |
$ | 2,617,000 | $ | 1,501,000 | $ | 5,016,000 | $ | 2,213,000 | ||||||||
Basic income per common share: |
||||||||||||||||
Income from continuing operations |
$ | 0.04 | $ | 0.02 | $ | 0.08 | $ | 0.03 | ||||||||
Income from discontinued operations |
| 0.00 | | 0.00 | ||||||||||||
Net income |
$ | 0.04 | $ | 0.02 | $ | 0.08 | $ | 0.03 | ||||||||
Diluted income per common share: |
||||||||||||||||
Income from continuing operations |
$ | 0.04 | $ | 0.02 | $ | 0.07 | $ | 0.03 | ||||||||
Income from discontinued operations |
| 0.00 | | 0.00 | ||||||||||||
Net income |
$ | 0.04 | $ | 0.02 | $ | 0.07 | $ | 0.03 | ||||||||
Shares used in per share calculation basic |
65,208,875 | 63,976,551 | 66,190,442 | 63,883,974 | ||||||||||||
Shares used in per share calculation diluted |
67,280,939 | 66,359,134 | 68,638,470 | 65,935,977 | ||||||||||||
Note: EPS totals off due to rounding
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Note 1 |
||||||||||||||||
Components of Income from discontinued operations: |
||||||||||||||||
Revenue from discontinued operations |
$ | | $ | 721,000 | $ | | $ | 1,658,000 | ||||||||
Expenses from discontinued operations |
| 533,000 | | 1,180,000 | ||||||||||||
Tax expense |
| (66,000 | ) | | (168,000 | ) | ||||||||||
Income from discontinued operations |
$ | | $ | 122,000 | $ | | $ | 310,000 | ||||||||
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Operating activities: |
||||||||
Net income |
$ | 5,016,000 | $ | 2,213,000 | ||||
Non-cash items in net income |
891,000 | 1,689,000 | ||||||
Changes in operating assets and liabilities |
(6,000 | ) | 519,000 | |||||
Net cash provided by operating activities |
5,901,000 | 4,421,000 | ||||||
Investing activities: |
||||||||
Purchases of property and equipment |
(755,000 | ) | (663,000 | ) | ||||
(Purchase) sale of marketable securities |
(2,290,000 | ) | 25,000 | |||||
Net cash used in investing activities |
(3,045,000 | ) | (638,000 | ) | ||||
Financing activities: |
||||||||
Proceeds from exercise of stock options |
1,610,000 | 469,000 | ||||||
Proceeds from exercise of warrants |
724,000 | | ||||||
Payment of license subscription note payable |
(68,000 | ) | (62,000 | ) | ||||
Purchase of Treasury Stock |
(14,912,000 | ) | | |||||
Net cash (used by) provided by financing activities |
(12,646,000 | ) | 407,000 | |||||
(Decrease) increase in cash and cash equivalents |
(9,790,000 | ) | 4,190,000 | |||||
Cash and cash equivalents, beginning of period |
24,619,000 | 13,287,000 | ||||||
Cash and cash equivalents, end of period |
$ | 14,829,000 | $ | 17,477,000 | ||||
ZIX CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited)
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||
Revenue: |
||||||||||||||||||||
GAAP revenue |
$ | 9,431,000 | $ | 8,194,000 | $ | 18,702,000 | $ | 15,673,000 | ||||||||||||
Gross profit: |
||||||||||||||||||||
GAAP gross profit |
$ | 7,675,000 | $ | 6,624,000 | $ | 15,129,000 | $ | 12,601,000 | ||||||||||||
Stock-based compensation charges (1) |
(A | ) | 12,000 | 43,000 | 24,000 | 80,000 | ||||||||||||||
Non-GAAP adjusted gross profit |
$ | 7,687,000 | $ | 6,667,000 | $ | 15,153,000 | $ | 12,681,000 | ||||||||||||
Operating income: |
||||||||||||||||||||
GAAP operating income |
$ | 2,587,000 | $ | 1,388,000 | $ | 4,968,000 | $ | 1,829,000 | ||||||||||||
Stock-based compensation charges (1) |
(A | ) | 98,000 | 474,000 | 217,000 | 920,000 | ||||||||||||||
Non-recurring severance payments (2) |
(B | ) | | 89,000 | | 89,000 | ||||||||||||||
Expenses related to wind down of e-Prescribing business (3) |
(C | ) | | 2,000 | | 2,000 | ||||||||||||||
Non-GAAP adjusted operating income |
$ | 2,685,000 | $ | 1,953,000 | $ | 5,185,000 | $ | 2,840,000 | ||||||||||||
Income from continuing operations: |
||||||||||||||||||||
GAAP income from continuing operations |
$ | 2,617,000 | $ | 1,379,000 | $ | 5,016,000 | $ | 1,903,000 | ||||||||||||
Stock-based compensation charges (1) |
(A | ) | 98,000 | 474,000 | 217,000 | 920,000 | ||||||||||||||
Non-recurring severance payments (2) |
(B | ) | | 89,000 | | 89,000 | ||||||||||||||
Expenses related to wind down of e-Prescribing business (3) |
(C | ) | | 2,000 | | 2,000 | ||||||||||||||
Income tax impact |
(D | ) | | (62,000 | ) | 4,000 | (158,000 | ) | ||||||||||||
Non-GAAP adjusted income from continuing operations |
$ | 2,715,000 | $ | 1,882,000 | $ | 5,237,000 | $ | 2,756,000 | ||||||||||||
Income from discontinued operations: |
||||||||||||||||||||
GAAP income on discontinued operations |
$ | | $ | 122,000 | $ | | $ | 310,000 | ||||||||||||
Stock-based compensation charges (1) |
(A | ) | | 14,000 | | 77,000 | ||||||||||||||
Non-recurring severance payments (2) |
(B | ) | | 80,000 | | 83,000 | ||||||||||||||
Expenses related to wind down of e-Prescribing business (3) |
(C | ) | | | | 8,000 | ||||||||||||||
Income tax impact |
(D | ) | | 66,000 | | 168,000 | ||||||||||||||
Non-GAAP adjusted income from discontinued operations |
$ | | $ | 282,000 | $ | | $ | 646,000 | ||||||||||||
Net income: |
||||||||||||||||||||
GAAP net income |
$ | 2,617,000 | $ | 1,501,000 | $ | 5,016,000 | $ | 2,213,000 | ||||||||||||
Stock-based compensation charges (1) |
(A | ) | 98,000 | 488,000 | 217,000 | 997,000 | ||||||||||||||
Non-recurring severance payments (2) |
(B | ) | | 169,000 | | 172,000 | ||||||||||||||
Expenses related to strategic review and wind down of e-Prescribing business (3) |
(C | ) | | 2,000 | | 10,000 | ||||||||||||||
Income tax impact |
(D | ) | | 4,000 | 4,000 | 10,000 | ||||||||||||||
Non-GAAP adjusted net income |
$ | 2,715,000 | $ | 2,164,000 | $ | 5,237,000 | $ | 3,402,000 | ||||||||||||
Diluted income from continuing operations per common share: |
||||||||||||||||||||
GAAP income from continuing operations |
$ | 0.04 | $ | 0.02 | $ | 0.07 | $ | 0.03 | ||||||||||||
Adjustments per share |
(A-D | ) | $ | 0.00 | $ | 0.01 | $ | 0.00 | $ | 0.01 | ||||||||||
Non-GAAP adjusted income from continuing operations |
$ | 0.04 | $ | 0.03 | $ | 0.08 | $ | 0.04 | ||||||||||||
Diluted net income per common share: |
||||||||||||||||||||
GAAP net income |
$ | 0.04 | $ | 0.02 | $ | 0.07 | $ | 0.03 | ||||||||||||
Adjustments per share |
(A-D | ) | $ | 0.00 | $ | 0.01 | $ | 0.00 | $ | 0.02 | ||||||||||
Non-GAAP adjusted net income |
$ | 0.04 | $ | 0.03 | $ | 0.08 | $ | 0.05 | ||||||||||||
Shares used to compute Non-GAAP adjusted net income per
share diluted |
67,280,939 | 66,359,134 | 68,638,470 | 65,935,977 | ||||||||||||||||
Reconciliation of Net income to EBITDA and Adjusted
EBITDA: |
(E | ) | ||||||||||||||||||
Net income |
$ | 2,617,000 | $ | 1,501,000 | $ | 5,016,000 | $ | 2,213,000 | ||||||||||||
Income tax provision |
(11,000 | ) | 90,000 | 13,000 | 138,000 | |||||||||||||||
Interest expense |
3,000 | 5,000 | 7,000 | 12,000 | ||||||||||||||||
Depreciation expense |
341,000 | 341,000 | 672,000 | 685,000 | ||||||||||||||||
EBITDA |
2,950,000 | 1,937,000 | 5,708,000 | 3,048,000 | ||||||||||||||||
Adjustments: |
||||||||||||||||||||
Share-based compensation expense |
(A | ) | 98,000 | 488,000 | 217,000 | 997,000 | ||||||||||||||
Non-recurring severance payments |
(B | ) | | 169,000 | | 172,000 | ||||||||||||||
Expenses related to strategic review and wind down of e-Prescribing business |
(C | ) | | 2,000 | | 10,000 | ||||||||||||||
Adjusted EBITDA |
$ | 3,048,000 | $ | 2,596,000 | $ | 5,925,000 | $ | 4,227,000 | ||||||||||||
Adjusted EBITDA margin |
32.3 | % | 31.7 | % | 31.7 | % | 27.0 | % | ||||||||||||
(1) Stock-based compensation charges are included as follows: |
||||||||||||||||||||
Cost of revenues |
$ | 12,000 | $ | 43,000 | $ | 24,000 | $ | 80,000 | ||||||||||||
Research and development |
13,000 | 48,000 | 26,000 | 91,000 | ||||||||||||||||
Selling, general and administrative |
73,000 | 383,000 | 167,000 | 749,000 | ||||||||||||||||
Discontinued operations |
| 14,000 | | 77,000 | ||||||||||||||||
$ | 98,000 | $ | 488,000 | $ | 217,000 | $ | 997,000 | |||||||||||||
(2) Non-recurring severance payments are included as follows: |
||||||||||||||||||||
Selling, general and administrative |
$ | | $ | 89,000 | $ | | $ | 89,000 | ||||||||||||
Discontinued operations |
| 80,000 | | 83,000 | ||||||||||||||||
$ | | $ | 169,000 | $ | | $ | 172,000 | |||||||||||||
(3) Expenses related to strategic review and the wind down of e-Prescribing business are as follows: |
||||||||||||||||||||
Selling, general and administrative |
$ | | $ | 2,000 | $ | | $ | 2,000 | ||||||||||||
Discontinued operations |
| | | 8,000 | ||||||||||||||||
$ | | $ | 2,000 | $ | | $ | 10,000 | |||||||||||||
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 (E) on the next page.
ZIX CORPORATION
NOTES TO RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
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 Companys future financial performance. Management uses these Non-GAAP financial measures to
make operational and investment decisions, to evaluate the Companys 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 Gross profit, Operating income, Income from continuing
operations, Income from discontinued operations, Net income, Income per share diluted from
continuing operations, Net income per share diluted, and EBITDA for non-cash stock-based
compensation expense, non-recurring severance expenses and expense related to the wind down of our
e-Prescribing business to derive Non-GAAP adjusted Gross profit, adjusted Operating income,
adjusted Income from continuing operations, adjusted Income from discontinued operations, adjusted
Net income, adjusted Income per share diluted from continuing operations, 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, Income from continuing operations, Income from
discontinued operations, Net income, Income per share diluted from continuing operations, 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. At this time, such one-time transactions are unknown and not available. Estimates of
these one-time items may differ materially from actual results. See items (A) through (C) below
for further information on the current quarters reconciling items.
Items (A) through (E) 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
from continuing operations, Net income from discontinued operations, Net income, Net income
from continuing operations per share diluted, Net income per share diluted and EBITDA and
correspond to the categories explained in further detail below under (A) through (E).
(A) Non-cash stock-based compensation charges relating to stock option grants awarded to employees
and third-party service providers 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) Severance payments related to reduction in workforce. See item (2) on previous page for
breakdown of severance payments. The Companys 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) Expenses related to strategic review and wind down of the Companys e-Prescribing business
segment. The Companys management excludes these costs when evaluating the ongoing performance
and/or predicting its earnings trends and therefore excludes these charges when presenting Non-GAAP
financial measures.
(D) 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
pervious periods. The remaining provision for income taxes represents expected cash taxes to be
paid.
(E) EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted
EBITDA adds back stock-based compensation, severance payments and expenses relating to the wind
down of the Companys e-Prescribing business.