ZIX CORP - FORM 8-K - EX-99.1

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8-K - 8-K - ZIX CORP	d807550d8k.htm

Exhibit 99.1

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ZixCorp Announces 2014 Third Quarter Results

Company meets high-end of earnings guidance with non-GAAP net income of $0.04 per share

DALLAS — Oct. 21, 2014 — 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.

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Third Quarter 2014 Corporate Financial Summary and Other Operational Metrics

$ in Millions, except per share and % data

Q3
2014

Q3
2013

% 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.

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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.

SOURCE Zix Corporation


ZixCorp Contacts

Investor Relations Todd Kehrli or Jim Byers (323) 468-2300 zixi@mkr-group.com		Public Relations Taylor Stansbury Johnson (214) 370-2134 tjohnson@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.

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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.

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