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Zix Corporation Announces Fourth Quarter and Year-End 2007 Financial Results


Company Exceeds Guidance in All Areas as It Continues to Set Records for Revenue and Gross Margins

DALLAS, Feb. 19, 2008 (PRIME NEWSWIRE) -- Zix Corporation (ZixCorp(r)), (Nasdaq:ZIXI), the leader in hosted services for email encryption and e-prescribing, today announced financial results for the fourth quarter ended December 31, 2007. ZixCorp recorded fourth quarter revenues of $7.0 million and a net loss of $1.4 million for the quarter, or $0.02 per share, compared with revenues of $5.5 million, and a net loss of $3.4 million, or $0.06 per share, in the corresponding quarter in 2006. Total revenue for the full year 2007 was $24.1 million compared with $18.4 million in 2006. Net loss for the full year 2007 was $8.1 million compared with $19.5 million for 2006. Total cash and cash equivalents (including marketable securities) as of December 31, 2007 were $12.3 million.

"ZixCorp exceeded revenue guidance each quarter of 2007, ending with record revenue of $24.1 million for full year 2007," said Rick Spurr, chairman of the board and chief executive officer. "I am pleased that we have maintained strong top line growth this year while also reducing costs compared with the prior year. We remain on track to attain our goal of achieving positive cash flow in the first quarter of 2008. We have combined significantly improved financial fundamentals with an increased recognition in the market of our leadership positions in both businesses to create a strong foundation for continued growth."

Corporate Highlights

  • Company-wide fourth quarter 2007 revenue of $7.0 million is up 26 percent over the comparable quarter in 2006, exceeding previously-issued revenue guidance of $6.3 to $6.8 million. The full year 2007 revenue of $24.1 million represented 31 percent year-on-year revenue growth over 2006
  • The Company's year-end balance of cash and cash equivalents (including marketable securities) was $12.3 million, ahead of the Company's revised guidance range of $11.5 to $11.8 million
  • ZixCorp was once again named to Deloitte's prestigious Technology Fast 50 Program for Texas, based on the Company's 998 percent revenue growth from 2002-2006
  • The Company significantly reduced its cash burn from operations from $18.3 million in 2006 down to $3.1 million in 2007, which does not include the net cash inflow from financing activities noted below. The $3.1 million cash burn from operations in 2007 was well ahead of the original $4.8 million dollar guidance for cash consumption for the year
  • Financing activities in Q4 included the receipt of approximately $4.2 million in cash following the exercise of outstanding warrants and stock options, in part used to fully prepay the $1.6 million promissory note payable to sanofi-aventis. The restructured note, which was the Company's only significant debt, originally called for ratable, quarterly principal payments beginning in April 2008 and concluding in January 2010

Business Highlights

e-Prescribing

  • e-Prescribing revenue for fourth quarter 2007 was $1.7 million
  • * ZixCorp entered into a contract with Blue Cross Blue Shield of Massachusetts (BCBSMA) to jointly conduct a pilot of disease management enrollment alerts through ZixCorp's PocketScript(r) e-prescribing service. The disease management enrollment feature alerts physicians via PocketScript at the point of care that the patient may be eligible for enrollment in a BCBSMA disease management program
  • ZixCorp's PocketScript(r) e-Prescribing service processed over 2 million e-scripts in the fourth quarter, bringing the full year 2007 total prescriptions processed to 7.4 million, an increase of 40 percent over 2006
  • The Company's PocketScript business exceeded the high end of the 250-300 e-prescribing deployment guidance for the fourth quarter with 327 deployments
  • Our pre-2006 customers extended their e-prescribing program contracts with the Company for at least the second time by agreeing to license renewals for previously deployed PocketScript physicians considered actively using the technology

Email Encryption

  • Email Encryption revenue for fourth quarter 2007 was $5.3 million, up 39 percent when compared to fourth quarter 2006
  • Email Encryption achieved new first-year orders for the fourth quarter 2007 of $1.4 million, up 29 percent over the comparable quarter in 2006. For all of 2007, new first-year orders were $5.5 million vs. $4.7 million in 2006. Total orders for 2007 were $24.2 million, an increase of 38 percent over 2006
  • ZixCorp earned a coveted position in the Leader's Quadrant of Gartner's Magic Quadrant for Email Encryption published in Q4
  • ZixCorp announced in fourth quarter 2007 that ZixDirectory(tm), the industry's largest email encryption directory, marked a new milestone, surpassing more than nine million members
  • The Company also announced the availability of mobile email encryption service that allows users to securely compose, read, reply and forward an encrypted email message from a handheld device without having to download any software

Financial Highlights

Revenues: Company-wide revenues were a record $7.0 million in the fourth quarter 2007, which was a 26 percent increase over the fourth quarter 2006. The Company's Email Encryption business had its highest quarterly revenue in company history with $5.3 million, a 39 percent improvement over the corresponding period in 2006, while the e-Prescribing quarterly revenue of $1.7 million was essentially flat when compared with 2006. For the year 2007, Email Encryption revenue was $18.0 million, a 28 percent increase over 2006. Email Encryption's increase was due to the revenue growth inherent in a successful subscription model with steady additions to the subscriber base coupled with a high rate of renewing existing customers, which was 99 percent for all of 2007 based on revenue. For the year 2007, e-Prescribing revenues were $6.1 million, a 44 percent increase over 2006. The Company's order backlog (contractually bound service contracts that represent future revenue to be recognized as the services are provided) was a record $31.8 million on December 31, 2007.



     Revenues by Product Fourth Quarter and Full Year 2006 - 2007

                                Three Months Ended,   3-month Variance
                                   December 31,         2007 vs. 2006
                              ----------------------  ----------------
                                  2007        2006         $        %
                              ----------  ----------  -----------  ---
 Email Encryption             $5,297,000  $3,807,000  $1,490,000   39%
 e-Prescribing                 1,684,000   1,737,000     (53,000)  (3%)
                              ---------   ----------  ----------
 Total revenues               $6,981,000  $5,544,000  $1,437,000   26%
                              ==========  ==========  ==========

                              Twelve Months Ended,    12-month Variance
                                  December 31,          2007 vs. 2006
                            ------------------------  -----------------
                               2007          2006           $        %
                            -----------  -----------  ----------   ---
 Email Encryption           $17,982,000  $14,094,000  $3,888,000   28%
 e-Prescribing                6,132,000    4,264,000   1,868,000   44%
                            -----------  -----------  ----------
 Total revenues             $24,114,000  $18,358,000  $5,756,000   31%
                            ===========  ===========  ==========

Gross Margin: The Company recorded its highest gross margin ever with $4.3 million (61 percent of revenue) for the fourth quarter 2007. The gross margin contribution from the Email Encryption business was $4.2 million (79 percent), while the gross margin contribution for e-Prescribing was $0.1 million for the fourth quarter 2007. The Company-wide gross margin for the same period in 2006 was $2.6 million or 47 percent of revenue. For total year 2007, the Company-wide gross margin was $13.3 million (55 percent of revenue), a 128 percent improvement over the $5.8 million gross margin for 2006. The annual year-on-year gross margin improvement came from revenue growth in both Email Encryption and e-Prescribing combined with a 13 percent decrease in cost of sales over the same period.

R&D and SG&A Expenditures: In the fourth quarter 2007, the combination of the Company's research and development (R&D) expenses and its sales, general, and administrative (SG&A) expenses decreased by $435,000 when compared with the same period in 2006, representing a decrease of 7 percent. Spending for these areas declined primarily as a result of continued cost-cutting measures during 2007 in the Company's SG&A.

Cash Utilization: Cash and cash equivalents (including marketable securities) as of December 31, 2007 were $12.3 million. Net cash utilization from operations (i.e., not including financing activities) for the fourth quarter 2007 totaled $1.9 million. Full-year cash burn from operations declined from $18.3 million in 2006 to $3.1 million in 2007, well ahead of the original guidance of $4.8 million for the year. The year-over-year improvement of $15.2 million in net operating cash utilization came from the combination of greater cash receipts from the Company's Email Encryption and e-Prescribing businesses combined with reductions in overall spending resulting from the cost cutting activities undertaken in 2006. Additionally in Q4 2007, the Company collected $4.2 million in proceeds from the exercise of stock options and warrants which was used in part to pay off the Company's remaining borrowings of $1.6 million owed to sanofi-aventis.

Outlook: The Company forecasts revenue for the first quarter to be between $6.7 and $7.0 million. e-Prescribing deployments for the first quarter are expected to be between 200 and 250 deployments. Our ending balance of cash and cash equivalents (including marketable securities) for the first quarter is projected to be greater than our 2007 ending cash balance of $12.3 million

Fourth Quarter Conference Call Information

The Company's fourth quarter and year-end 2007 operating results will be released after close of the U.S. financial markets on February 19, 2008. The Company will hold a conference call to discuss this information on February 19 at 5:00 p.m. ET.

A live Webcast of the conference call will be available on the investor relations portion of ZixCorp's Web site at http://investor.zixcorp.com. Alternatively, participants can listen to the conference call by dialing 617-786-2960 or toll-free 800-884-5695 and entering access code 49789109. An audio replay of the conference will be available until February 26, by dialing 617-801-6888 or toll-free 888-286-8010, and entering the access code 12526061, and after that date via Webcast on the Company's Web site.

About Zix Corporation

ZixCorp is the leading provider of easy-to-use-and-deploy email encryption and e-prescribing services that Connect entities with their customers and partners to Protect and Deliver sensitive information in the healthcare, finance, insurance and government industries. ZixCorp's hosted Email Encryption Service provides an easy and cost-effective way to ensure customer privacy and regulatory compliance for corporate email. Its PocketScript(r) e-prescribing service saves lives and saves money by automating the prescription process between payors, doctors, and pharmacies. For more information, visit www.zixcorp.com.

Safe Harbor Statement for ZixCorp

The following is a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Mr. Spurr's statement, "We remain on track to attain our goal of achieving positive cash flow in the first quarter of 2008", and the statements under the caption "Outlook" are forward-looking statements, not a guarantee of future performance, and involve risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the Company's continued operating losses and use of cash resources; the Company's ability to achieve broad market acceptance for the Company's products and services, including the Company's ability to enter into new sponsorship arrangements, or expand existing sponsorship arrangements, for its PocketScript e-prescribing services and the Company's ability to continue obtaining acceptance of its Email Encryption business in its core markets of healthcare and financial and to achieve market acceptance of its Email Encryption business in the insurance, government and other markets; the Company's ability to maintain existing and generate other revenue opportunities, including fees for scripts written, from its PocketScript e-prescribing service; the Company's ability to establish and maintain OEM, reseller and other strategic relationships to gain customers and grow revenues, particularly in its Email Encryption business; the expected increase in competition in the Company's Email Encryption and e-Prescription businesses; the affect of government regulation, including a possible governmental e-prescription mandate pertaining to Medicare prescriptions; and the Company's ability to successfully and timely introduce new Email Encryption and e-Prescription products and services or related products and services and implement technological changes. Further details pertaining to such risks and uncertainties may be found in the Company's public filings with the SEC.



                           ZIX CORPORATION
                CONDENSED CONSOLIDATED BALANCE SHEETS

                                            December 31,  December 31,
                                                2007          2006
                                             (unaudited)    (audited)
                                            ------------  ------------
 ASSETS
 Current assets:
  Cash and cash equivalents                 $ 10,524,000  $ 12,783,000
  Marketable securities                        1,734,000            --
  Receivables, net                             1,119,000       746,000
  Prepaid and other current assets             1,549,000     2,178,000
                                            ------------  ------------
   Total current assets                       14,926,000    15,707,000
 Restricted cash                                  25,000        35,000
 Property and equipment, net                   2,297,000     2,404,000
 Goodwill, intangible and other assets         2,226,000     2,220,000
                                            ------------  ------------
   Total assets                             $ 19,474,000  $ 20,366,000
                                            ============  ============

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
  Accounts payable and accrued expenses     $  3,295,000  $  3,300,000
  Deferred revenue                            12,606,000     8,388,000
  Customer deposits                                   --     2,000,000
  Promissory note payable                             --     2,661,000
  Short-term note payable                             --       255,000
                                            ------------  ------------
   Total current liabilities                  15,901,000    16,604,000
 Long-term liabilities:
  Deferred revenue                             3,497,000     2,496,000
  Deferred rent                                  365,000       339,000
                                            ------------  ------------
   Total long-term liabilities                 3,862,000     2,835,000
                                            ------------  ------------
   Total liabilities                          19,763,000    19,439,000
   Total stockholders' equity                   (289,000)      927,000
                                            ------------  ------------
   Total liabilities and stockholders'
    equity                                  $ 19,474,000  $ 20,366,000
                                            ============  ============


                           ZIX CORPORATION
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             (Unaudited)

                      Three Months Ended        Twelve Months Ended
                         December 31,               December 31,
                   ------------------------  -------------------------
                      2007          2006        2007          2006
                   -----------  -----------  -----------  ------------

 Revenues            6,981,000    5,544,000   24,114,000    18,358,000

 Cost of revenues    2,704,000    2,956,000   10,866,000    12,552,000
                   -----------  -----------  -----------  ------------
 Gross margin
  (loss)             4,277,000    2,588,000   13,248,000     5,806,000
 Operating expenses:
  Research and
   development
   expenses          1,360,000    1,234,000    5,322,000     6,085,000
  Selling, general
   and
   administrative
   expenses          4,276,000    4,837,000   17,961,000    23,188,000
  Customer deposit
   forfeiture               --           --   (2,000,000)   (1,000,000)
  Gain on sale of
   product lines            --      (42,000)          --       (53,000)
  Asset impairment
   charge                   --           --           --       125,000
  Loss on
   impairment of
   operating lease          --           --      100,000            --
                   -----------  -----------  -----------  ------------
   Total operating
    expenses         5,636,000    6,029,000   21,383,000    28,345,000
                   -----------  -----------  -----------  ------------

 Operating loss     (1,359,000)  (3,441,000)  (8,135,000)  (22,539,000)

 Other (expense)
  income:
  Investment and
   other income        203,000      185,000      640,000       925,000
  Interest expense     (30,000)    (117,000)    (171,000)   (1,126,000)
  Gain (loss) on
   derivative
   liabilities              --       (7,000)          --     4,043,000
  Loss on
   extinguishment
   of convertible
   debt                (77,000)          --     (255,000)     (871,000)
                   -----------  -----------  -----------  ------------
   Total other
    income              96,000       61,000      214,000     2,971,000
                   -----------  -----------  -----------  ------------

 Loss before income
  taxes             (1,263,000)  (3,380,000)  (7,921,000)  (19,568,000)
 Income tax benefit
  (expense)           (127,000)     (17,000)    (181,000)       60,000
                   -----------  -----------  -----------  ------------

 Net loss          $(1,390,000) $(3,397,000) $(8,102,000) $(19,508,000)
                   ===========  ===========  ===========  ============

 Basic and diluted
  loss per common
  share            $     (0.02) $     (0.06) $     (0.13) $      (0.34)
                   ===========  ===========  ===========  ============

 Basic and diluted
  weighted average
  common shares
  outstanding       61,127,286   59,638,839   60,425,763    57,067,678
                   ===========  ===========  ===========  ============


                           ZIX CORPORATION
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Unaudited)

                                               Twelve Months Ended
                                                   December 31,
                                          ----------------------------
                                              2007            2006
                                          -------------  -------------
 Operating activities:
  Net loss                                $  (8,102,000) $ (19,508,000)
  Non-cash items in net loss                  1,217,000      2,594,000
  Changes in operating assets and
   liabilities                                5,442,000        236,000
                                          -------------  -------------
   Net cash used by operating activities     (1,443,000)   (16,678,000)

 Investing activities:
  Purchases of property and equipment        (1,431,000)    (1,239,000)
  Proceeds from restricted cash
   investments                                   10,000      5,100,000
  Proceeds from sale of product lines                --         53,000
  Purchases of marketable securities         (1,734,000)            --
                                          -------------  -------------
   Net cash provided by investing
    activities                               (3,155,000)     3,914,000

 Financing activities:
  Proceeds from private placement of
   common stock                                      --     11,817,000
  Payment of expenses relating to private
   placement of common stock                         --       (853,000)
  Issuance of common stock upon exercise
   of stock options                             542,000             --
  Issuance of common stock upon exercise
   of warrants                                3,652,000             --
  Payment of convertible debt                        --     (5,000,000)
  Payment of premium on convertible debt             --       (200,000)
  Payment of short-term note payable,
   capital leases and other                    (255,000)      (457,000)
  Payment of promissory note payable         (1,600,000)            --
                                          -------------  -------------
   Net cash provided by financing
    activities                                2,339,000      5,307,000
                                          -------------  -------------

 Decrease in cash and cash equivalents       (2,259,000)    (7,457,000)
 Cash and cash equivalents, beginning of
  period                                     12,783,000     20,240,000
                                          -------------  -------------
 Cash and cash equivalents, end of
  period                                  $  10,524,000  $  12,783,000
                                          =============  =============

CONTACT: Zix Corporation
Public Relations:
Farrah Corley
(214) 370-2175
publicrelations@zixcorp.com
Investor Relations:
Peter Wilensky
(214) 515-7357
invest@zixcorp.com