Company Sets New Records for Revenue, Net Income, EBITDA and Bookings Backlog in the Quarter
DALLAS--(BUSINESS WIRE)-- Zix Corporation (NASDAQ: ZIXI), the leader in email encryption services, today announced financial results for the second quarter ended June 30, 2010.
Second Quarter 2010 Financial Highlights
- Revenue of $8.9 million, an increase of 20.9%, year-over-year
- GAAP net income of $.02 per share, an increase of $.05, year-over-year
- Non-GAAP net income of $.03 per share, an increase of $.04, year-over-year
- Cash flow from operations for the six months ended June 30, 2010, of $4.4 million, an increase of $4.7 million, year-over-year
- Cash and cash equivalents of $17.5 million, an increase of $4.2 million for the six months ended June 30, 2010
“We are proud to have maintained our steady growth with another successful quarter,” said Rick Spurr, ZixCorp’s Chairman and Chief Executive Officer. “Increasing demand for email encryption services, combined with increasing awareness of ZixCorp’s superior technology and services by the market, has resulted in ZixCorp being well-positioned for future growth. Our ZixDirectorySM – the world’s largest email encryption community, along with ZixCorp’s Software-as-a-Service (“SaaS”) revenue and delivery model, also provide ZixCorp with a highly predictable revenue stream and a strong platform for future growth.”
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Second Quarter 2010 Corporate Financial Summary and Other Operational Metrics |
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|
Q2 |
Q2 |
% or $ | ||||
| $ in Millions, except per share and % data |
2010 |
2009 |
Change (1) |
|||
| Revenue (2) | $8.9 | $7.4 | 20.9% | |||
| GAAP Gross Profit | $6.9 | $5.0 | 38.8% | |||
| GAAP Net Income (Loss) | $1.5 | ($1.9) | $3.4 | |||
| GAAP Net Income (Loss) Per Share - Diluted | $0.02 | ($0.03) | $0.05 | |||
| Non-GAAP Adjusted Gross Profit (3) | $7.1 | $5.1 | 38.6% | |||
| Non-GAAP Adjusted Net Income (Loss) (3) | $2.2 | ($.8) | $3.0 | |||
|
Non-GAAP Adjusted Net Income (Loss) Per Share-Diluted (3) |
$0.03 | ($0.01) | $0.04 | |||
| Adjusted EBITDA (3)(4) | $2.6 | ($.5) | $3.1 | |||
| Adjusted EBITDA Margin (3) | 29.1% | (6.4%) | 35.5% pts | |||
| Email Encryption New First Year Orders | $2.1 | $1.7 | 27.8% | |||
| Email Encryption Total Orders | $9.6 | $10.0 | (3.7%) | |||
|
Email Encryption Bookings Backlog (5) |
$45.6 | $39.2 | 16.4% | |||
(1) Changes are approximate due to rounding
(2) The second quarter 2010 includes approximately $300,000 of previously deferred revenue being recognized due to improvements in the Company’s deployment process
(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
Email Encryption:
- ZixCorp reached a new milestone in the healthcare industry by providing email encryption solutions to more than 1,200 hospitals, or nearly one of every five hospitals in the United States.
- The Company’s shared community of users, ZixDirectorySM, now includes more than 22 million members and is growing by more than 100,000 per week.
- The Company launched ZixGatewaySMInbound to provide healthcare organizations a proactive method of identifying unsecured protected health information (PHI) in inbound email messages and attachments. This solution provides an additional means of improving compliance with the Health Insurance Portability and Accountability Act (HIPAA) by notifying the appropriate internal compliance and data security managers if unprotected electronic PHI is detected.
e-Prescribing:
- On December 8, 2009, ZixCorp announced its planned exit from the e-Prescribing business. The Company is on track to exit this business on December 31, 2010, while fulfilling its existing obligations to customers and partners. We expect this business to generate a small amount of profit for 2010.
- Included in the Corporate results above are the e-Prescribing business segment results, as follows:
| Q2 | Q2 | % or $ | ||||
| $ in Millions, except % data | 2010 | 2009 | Change | |||
| Revenue | $0.721 | $0.992 | (27.3%) | |||
| Non-GAAP Adjusted Gross Profit | $0.406 | ($0.203) | $0.609 | |||
| Non-GAAP Adjusted Earnings (Loss) | $0.304 | ($1.785) | $2.089 | |||
Outlook:
For the third quarter 2010, the Company is forecasting revenue between $8.9 and $9.1 million, based on projected growth in Email Encryption and a continued decline in e-Prescribing revenues as the Company winds down that business segment. We expect both GAAP earnings and adjusted non-GAAP earnings to continue to rise in the third quarter, rounding to $0.02 and $0.03, respectively, per fully-diluted share.
For the full-year 2010, the Company is now forecasting revenue between $35.2 and $36.0 million, of which we expect e-Prescribing revenues to be between $2.3 and $2.5 million. We now expect adjusted, non-GAAP earnings to be between $0.10 and $0.11 per fully diluted share.
Conference Call Information:
The Company will discuss its financial results and outlook on a conference call on Tuesday, July 27, 2010, at 5:00 p.m. EDT. A live webcast of the conference call will be available on our investor relations web page at http://investor.zixcorp.com. Alternatively, participants can access the conference call by dialing 1-800-299-7635 (U.S. toll-free) or 1-617-786-2901 (international) at least 15 minutes before the call and entering access code 72989681. An audio replay of the conference will be available until August 3, 2010, by dialing 1-888-286-8010 (U.S. toll-free) or 1-617-801-6888 (international) and entering the access code 74994896. 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 service designed with your most important relationships in mind. Many of the most influential companies and government organizations use the proven ZixCorp® Email Encryption Service, including WellPoint, Humana, the SEC, and more than 1,200 hospitals and 1,300 financial institutions. ZixCorp Email Encryption Service is powered by ZixDirectorySM, 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 and news about Zix Corporation, visit www.zixcorp.com.
Statements in this release that are not purely historical facts or that necessarily depend upon future events, including statements about exiting the e-Prescribing business, 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 how privacy law mandates may affect the use of email encryption and ZixCorp’s ability to establish and maintain strategic and distribution relationships to gain customers and grow revenues in its Email Encryption business. 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 | |||||||
| June 30, | |||||||
| 2010 | December 31, | ||||||
| (unaudited) | 2009 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 17,477,000 | $ | 13,287,000 | |||
| Marketable securities | - | 25,000 | |||||
| Receivables, net | 564,000 | 760,000 | |||||
| Prepaid and other current assets | 854,000 | 1,142,000 | |||||
| Total current assets | 18,895,000 | 15,214,000 | |||||
| Property and equipment, net | 2,240,000 | 2,137,000 | |||||
| Goodwill and other assets | 2,325,000 | 2,397,000 | |||||
| Total assets | $ | 23,460,000 | $ | 19,748,000 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued expenses | $ | 3,065,000 | $ | 3,893,000 | |||
| Deferred revenue | 16,454,000 | 14,478,000 | |||||
| License subscription note payable | 131,000 | 126,000 | |||||
| Total current liabilities | 19,650,000 | 18,497,000 | |||||
| Long-term liabilities: | |||||||
| Deferred revenue | 1,803,000 | 2,821,000 | |||||
| License subscription note payable, non-current | 119,000 | 186,000 | |||||
| Deferred rent | 198,000 | 233,000 | |||||
| Total long-term liabilities | 2,120,000 | 3,240,000 | |||||
| Total liabilities | 21,770,000 | 21,737,000 | |||||
| Total stockholders’ equity (deficit) | 1,690,000 | (1,989,000 | ) | ||||
| Total liabilities and stockholders’ equity | $ | 23,460,000 | $ | 19,748,000 | |||
| ZIX CORPORATION | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Revenues | $ | 8,915,000 | $ | 7,371,000 | $ | 17,331,000 | $ | 14,627,000 | ||||||||
| Cost of revenues | 1,970,000 | 2,368,000 | 3,826,000 | 4,839,000 | ||||||||||||
| Gross profit | 6,945,000 | 5,003,000 | 13,505,000 | 9,788,000 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 1,307,000 | 1,747,000 | 2,755,000 | 3,478,000 | ||||||||||||
| Selling, general and administrative | 4,062,000 | 5,228,000 | 8,443,000 | 9,872,000 | ||||||||||||
| Total operating expenses | 5,369,000 | 6,975,000 | 11,198,000 | 13,350,000 | ||||||||||||
| Operating income (loss) | 1,576,000 | (1,972,000 | ) | 2,307,000 | (3,562,000 | ) | ||||||||||
| Operating margin | 18 | % | -27 | % | 13 | % | -24 | % | ||||||||
| Other income, net | 15,000 | 73,000 | 44,000 | 141,000 | ||||||||||||
| Income (loss) before income taxes | 1,591,000 | (1,899,000 | ) | 2,351,000 | (3,421,000 | ) | ||||||||||
| Provision for income taxes | (90,000 | ) | (26,000 | ) | (138,000 | ) | (46,000 | ) | ||||||||
| Net income (loss) | $ | 1,501,000 | $ | (1,925,000 | ) | $ | 2,213,000 | $ | (3,467,000 | ) | ||||||
| Net income (loss) per share - basic | $ | 0.02 | $ | (0.03 | ) | $ | 0.03 | $ | (0.05 | ) | ||||||
| Net income (loss) per share - diluted | $ | 0.02 | $ | (0.03 | ) | $ | 0.03 | $ | (0.05 | ) | ||||||
| Shares used in per share calculation - basic | 63,976,551 | 63,319,482 | 63,883,974 | 63,319,482 | ||||||||||||
| Shares used in per share calculation - diluted | 66,368,548 | 63,319,482 | 65,977,451 | 63,319,482 | ||||||||||||
| ZIX CORPORATION | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited) | ||||||||
| Six Months Ended June 30, | ||||||||
| 2010 | 2009 | |||||||
| Operating activities: | ||||||||
| Net income (loss) | $ | 2,213,000 | $ | (3,467,000 | ) | |||
| Non-cash items in net income (loss) | 1,689,000 | 2,024,000 | ||||||
| Changes in operating assets and liabilities | 519,000 | 1,204,000 | ||||||
| Net cash provided by (used in) operating activities | 4,421,000 | (239,000 | ) | |||||
| Investing activities: | ||||||||
| Purchases of property and equipment | (663,000 | ) | (515,000 | ) | ||||
| Restricted cash investments and marketable securities, net | 25,000 | 3,000 | ||||||
| Net cash used in investing activities | (638,000 | ) | (512,000 | ) | ||||
| Financing activities: | ||||||||
| Proceeds from exercise of stock options | 469,000 | - | ||||||
| Payment of license subscription note payable | (62,000 | ) | - | |||||
| Net cash provided by financing activities | 407,000 | - | ||||||
| Increase (decrease) in cash and cash equivalents | 4,190,000 | (751,000 | ) | |||||
| Cash and cash equivalents, beginning of period | 13,287,000 | 13,245,000 | ||||||
| Cash and cash equivalents, end of period | $ | 17,477,000 | $ | 12,494,000 | ||||
| ZIX CORPORATION | ||||||||||||||||||
| RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||
| Revenue: | ||||||||||||||||||
| GAAP revenue | $ | 8,915,000 | $ | 7,371,000 | $ | 17,331,000 | $ | 14,627,000 | ||||||||||
| Gross profit: | ||||||||||||||||||
| GAAP gross profit | $ | 6,945,000 | $ | 5,003,000 | $ | 13,505,000 | $ | 9,788,000 | ||||||||||
| Stock-based compensation charges (1) | (A) | 54,000 | 59,000 | 101,000 | 185,000 | |||||||||||||
| Non-recurring severance payments (2) | (B) | 74,000 | 42,000 | 77,000 | 42,000 | |||||||||||||
| Expenses related to wind-down of e-Prescribing business (3) | (C) | - | - | 8,000 | - | |||||||||||||
| Non-GAAP adjusted gross profit | $ | 7,073,000 | $ | 5,104,000 | $ | 13,691,000 | $ | 10,015,000 | ||||||||||
| Operating income (loss): | ||||||||||||||||||
| GAAP operating income (loss) | $ | 1,576,000 | $ | (1,972,000 | ) | $ | 2,307,000 | $ | (3,562,000 | ) | ||||||||
| Stock-based compensation charges (1) | (A) | 488,000 | 533,000 | 997,000 | 1,369,000 | |||||||||||||
| Non-recurring severance payments (2) | (B) | 169,000 | 484,000 | 172,000 | 484,000 | |||||||||||||
| Expenses related to wind-down of e-Prescribing business (3) | (C) | 2,000 | 75,000 | 10,000 | 75,000 | |||||||||||||
| Non-GAAP adjusted operating income (loss) | $ | 2,235,000 | $ | (880,000 | ) | $ | 3,486,000 | $ | (1,634,000 | ) | ||||||||
| Net income (loss): | ||||||||||||||||||
| GAAP net income (loss) | $ | 1,501,000 | $ | (1,925,000 | ) | $ | 2,213,000 | $ | (3,467,000 | ) | ||||||||
| Stock-based compensation charges (1) | (A) | 488,000 | 533,000 | 997,000 | 1,369,000 | |||||||||||||
| Non-recurring severance payments (2) | (B) | 169,000 | 484,000 | 172,000 | 484,000 | |||||||||||||
| Expenses related to wind-down of e-Prescribing business (3) | (C) | 2,000 | 75,000 | 10,000 | 75,000 | |||||||||||||
| Income tax impact | (D) | 4,000 | (2,000 | ) | 10,000 | 6,000 | ||||||||||||
| Non-GAAP adjusted net income (loss) | $ | 2,164,000 | $ | (835,000 | ) | $ | 3,402,000 | $ | (1,533,000 | ) | ||||||||
| Net income (loss) per share - diluted: | ||||||||||||||||||
| GAAP net income (loss) per share - diluted | $ | 0.02 | $ | (0.03 | ) | $ | 0.03 | $ | (0.05 | ) | ||||||||
| Adjustments per share | (A-D) | 0.01 | 0.02 | 0.02 | 0.03 | |||||||||||||
| Non-GAAP adjusted net income (loss) per share - diluted | $ | 0.03 | $ | (0.01 | ) | $ | 0.05 | $ | (0.02 | ) | ||||||||
| Shares used to compute non-GAAP adjusted net income (loss) per share - diluted | 66,368,548 | 63,319,482 | 65,977,451 | 63,319,482 | ||||||||||||||
| Reconciliation of Reported Net income (loss) to EBITDA and Adjusted EBITDA: | (E) | |||||||||||||||||
| Net income (loss) | $ | 1,501,000 | $ | (1,925,000 | ) | $ | 2,213,000 | $ | (3,467,000 | ) | ||||||||
| Income tax provision | 90,000 | 26,000 | 138,000 | 46,000 | ||||||||||||||
| Interest expense | 5,000 | 6,000 | 12,000 | 6,000 | ||||||||||||||
| Depreciation expense | 341,000 | 329,000 | 685,000 | 648,000 | ||||||||||||||
| EBITDA | 1,937,000 | (1,564,000 | ) | 3,048,000 | (2,767,000 | ) | ||||||||||||
| Adjustments: | ||||||||||||||||||
| Share based compensation expense | (A) | 488,000 | 533,000 | 997,000 | 1,369,000 | |||||||||||||
| Severance costs | (B) | 169,000 | 484,000 | 172,000 | 484,000 | |||||||||||||
| Expenses related to wind down of e-Prescribing business | (C) | 2,000 | 75,000 | 10,000 | 75,000 | |||||||||||||
| Adjusted EBITDA | $ | 2,596,000 | $ | (472,000 | ) | $ | 4,227,000 | $ | (839,000 | ) | ||||||||
| Adjusted EBITDA margin | 29 | % | -6 | % | 24 | % | -6 | % | ||||||||||
| (1) Stock-based compensation charges are included as follows: | ||||||||||||||||||
| Cost of revenues | $ | 54,000 | $ | 59,000 | $ | 101,000 | $ | 185,000 | ||||||||||
| Research and development | 51,000 | 49,000 | 98,000 | 150,000 | ||||||||||||||
| Selling, general and administrative | 383,000 | 425,000 | 798,000 | 1,034,000 | ||||||||||||||
| $ | 488,000 | $ | 533,000 | $ | 997,000 | $ | 1,369,000 | |||||||||||
| (2) Non-recurring severance payments are included as follows: | ||||||||||||||||||
| Cost of revenues | $ | 74,000 | $ | 42,000 | $ | 77,000 | $ | 42,000 | ||||||||||
| Selling, general and administrative | 95,000 | 442,000 | 95,000 | 442,000 | ||||||||||||||
| $ | 169,000 | $ | 484,000 | $ | 172,000 | $ | 484,000 | |||||||||||
| (3) Expenses related to the wind-down of e-Prescribing business are included as follows: | ||||||||||||||||||
| Cost of revenues | $ | - | $ | - | $ | 8,000 | $ | - | ||||||||||
| Selling, general and administrative | 2,000 | 75,000 | 2,000 | 75,000 | ||||||||||||||
| $ | 2,000 |
|
$ | 75,000 |
|
$ | 10,000 |
|
$ | 75,000 | ||||||||
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 |
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 Gross profit, Operating income (loss), Net income (loss), Net income (loss) 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 (loss), adjusted Net income (loss), adjusted Net income (loss) per share - diluted and adjusted EBITDA. We provide a reconciliation of these adjusted non-GAAP measures to GAAP Gross profit, Operating income (loss), Net income (loss), Net income (loss) 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 which is generally $500,000 to $600,000 on a quarterly basis. Additionally, the adjusted Non-GAAP earnings per share will consistently exclude nonrecurring items that impact our on-going 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 quarter's 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 (loss)," "Net income (loss)" and "Net income (loss) 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 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 Company’s management excludes these costs when evaluating the ongoing performance and/or predicting its earnings trends, and therefore excludes these charges on our operating results.
(C) Expenses related to strategic review and wind-down of the Company’s e-Prescribing business segment. The Company’s 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 Company’s U.S. operations’ net losses for U.S. tax purposes are fully provisioned. The non-GAAP adjustment represents the non-cash tax expense included in the GAAP tax provision. 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 Company's e-Prescribing business.
CONTACT:
ZixCorp
Investor Relations
Susan Conner, 214-515-7357
[email protected]
or
Public Relations
Taylor Stansbury, 214-370-2134
[email protected]
KEYWORDS: United States North America Texas
INDUSTRY KEYWORDS: Technology Software Security Health Hospitals
MEDIA:
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