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Zix Corporation Sets Record Revenue for First Quarter 2012
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Company exceeds $10 million in quarterly revenue

DALLAS, Apr 24, 2012 (BUSINESS WIRE) --Zix Corporation (NASDAQ: ZIXI), the leader in email encryption services, today announced financial results for the first quarter ended March 31, 2012.

First Quarter 2012 Financial Highlights

  • The Company achieved first quarter revenue of $10.3 million, an increase of 11.1%, year-over-year, the Company's 13th consecutive quarterly record in revenue
  • First quarter GAAP net income of $0.04 per share, an increase of 11.0%, year-over-year (1)
  • First quarter Non-GAAP net income of $0.04 per share, an increase of 24.5%, year-over-year (1)
  • Cash, cash equivalents and commercial paper investments totaling $18 million, a decrease of $2.7 million compared to the December 31, 2011, ending cash balance, reflecting the cash used for share repurchases

"In the first quarter, we set another revenue record exceeding our revenue guidance and met the high-end of our guidance for earnings per share. This strong start to 2012 shows our continued strength and gives us confidence as we move forward through the year," said Rick Spurr, ZixCorp's Chairman and Chief Executive Officer.

First Quarter 2012 Corporate Financial Summary and Other Operational Metrics

$ in Millions, except per share and % data

Q1
2012

Q1
2011

% or $
Change (1)

Revenue $10.3 $9.3 11.1%
GAAP Gross Profit $8.4 $7.5 13.3%
GAAP Net Income $2.4 $2.4 1.1%
GAAP Net Income Per Share - Diluted $0.04 $0.03 11.0%

Non-GAAP Adjusted Gross Profit (2)

$8.5 $7.5 13.5%
Non-GAAP Adjusted Net Income (2) $2.9 $2.5 13.4%
Non-GAAP Adjusted Net Income Per Share-Diluted (2) $0.04 $0.04 24.5%
Adjusted EBITDA (2) (3) $3.3 $2.9 16.2%
Adjusted EBITDA Margin (2) (3) 32% 31% 1pt
Email Encryption New First Year Orders $1.7 $1.5 14.2%
Email Encryption Total Orders $9.1 $9.0 0.9%
Email Encryption Bookings Backlog (4) $52.3 $49.7 5.3%

(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 page 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 introduced superior transport layer security (TLS) support with the new release of ZixGateway 4.3. By integrating TLS in the policy console, compliance and security officers benefit from reduced administration, increased delivery control, enhanced transparent delivery, guaranteed encrypted replies and unique reporting capabilities that do not exist with any other TLS email solution.
  • ZixCorp accomplished an industry milestone registering the 30 millionth member of ZixDirectory(R). Growing at approximately 100,000 members per week, ZixDirectory continues to be the largest email encryption network in the world.

Outlook

The Company forecasts revenue for the second quarter to be between $10.3 million and $10.5 million and fully diluted adjusted earnings per share of $0.04. For the full year, the Company reaffirms previously issued revenue guidance of $41 million to $43 million and fully diluted Non-GAAP adjusted earnings per share of $0.19 to $0.20.

Conference Call Information:

The Company will discuss its financial results and outlook on a conference call on Tuesday, April 24, 2012, at 5 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 1-800-901-5213 (U.S. toll-free) or 1-617-786-2962 (international) at least 15 minutes before the call and entering access code 83500277. An audio replay of the conference will be available until May 2, 2012, by dialing 1-888-286-8010 (U.S. toll-free) or 1-617-801-6888 (international) and entering the access code 27023964. 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(R) Email Encryption Services, including WellPoint, the SEC, and more than 1,400 hospitals and 1,700 financial institutions. ZixCorp Email Encryption Services are powered by ZixDirectory(R), 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 http://www.zixcorp.com.

Statements in this release that are not purely historical facts or that necessarily depend upon future events, including statements about 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 and data security law mandates may affect demand for email encryption and ZixCorp's 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 ZixCorp's most recent filing on Form 10-K with the Securities and Exchange Commission.

ZIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
2012 December 31,
(unaudited) 2011
ASSETS
Current assets:
Cash and cash equivalents $ 18,006,000 $ 20,680,000
Receivables, net 1,149,000 704,000
Prepaid and other current assets 1,365,000 1,422,000
Deferred tax assets 3,065,000 1,551,000
Total current assets 23,585,000 24,357,000
Property and equipment, net 2,123,000 2,228,000
Goodwill 2,161,000 2,161,000
Deferred tax assets 47,223,000 48,806,000
Other assets - -
Total assets $ 75,092,000 $ 77,552,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,985,000 $ 2,292,000
Deferred revenue 17,023,000 16,568,000
Total current liabilities 19,008,000 18,860,000
Long-term liabilities:
Deferred revenue 547,000 795,000
Deferred rent 125,000 140,000
Total long-term liabilities 672,000 935,000
Total liabilities 19,680,000 19,795,000
Total stockholders' equity 55,412,000 57,757,000
Total liabilities and stockholders' equity $ 75,092,000 $ 77,552,000
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2012 2011
Revenues $ 10,301,000 $ 9,271,000
Cost of revenues 1,855,000 1,817,000
Gross profit 8,446,000 7,454,000
Operating expenses:
Research and development 1,477,000 1,313,000
Selling, general and administrative 4,330,000 3,760,000
Total operating expenses 5,807,000 5,073,000
Operating income 2,639,000 2,381,000
Operating margin 26 % 26 %
Other income, net 5,000 42,000
Income before income taxes 2,644,000 2,423,000
Income tax (expense) benefit (218,000 ) (24,000 )
Net income $ 2,426,000 $ 2,399,000
Basic income per common share: $ 0.04 $ 0.04
Diluted income per common share: $ 0.04 $ 0.03
Shares used in per share calculation - basic 63,022,777 67,182,916
Shares used in per share calculation - diluted 63,764,735 70,006,906
Note: EPS totals off due to rounding
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2012 2011
Operating activities:
Net income $ 2,426,000 $ 2,399,000
Non-cash items in net income 608,000 455,000
Changes in operating assets and liabilities (501,000 ) 560,000
Net cash provided by operating activities 2,533,000 3,414,000
Investing activities:
Purchases of property and equipment (228,000 ) (208,000 )
(Purchase) sale of commercial paper - (2,290,000 )
Net cash used in investing activities (228,000 ) (2,498,000 )
Financing activities:
Proceeds from exercise of stock options 19,000 1,239,000
Proceeds from exercise of warrants - 23,000
Payment of license subscription note payable - (34,000 )
Purchase of Treasury Stock (4,998,000 ) (5,000,000 )
Net cash (used by) provided by financing activities (4,979,000 ) (3,772,000 )
(Decrease) increase in cash and cash equivalents (2,674,000 ) (2,856,000 )
Cash and cash equivalents, beginning of period 20,680,000 24,619,000
Cash and cash equivalents, end of period $ 18,006,000 $ 21,763,000
ZIX CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited)
Three Months Ended
March 31,
2012 2011
Revenue:
GAAP revenue $ 10,301,000 $ 9,271,000
Gross profit:
GAAP gross profit $ 8,446,000 $ 7,454,000
Stock-based compensation charges (1) (A) 25,000 12,000
Non-GAAP adjusted gross profit $ 8,471,000 $ 7,466,000
Operating income:
GAAP operating income $ 2,639,000 $ 2,381,000
Stock-based compensation charges (1) (A) 207,000 119,000
Non-recurring litigation costs (2) (B) 158,000 -
Non-GAAP adjusted operating income $ 3,004,000 $ 2,500,000
Net income:
GAAP net income $ 2,426,000 $ 2,399,000
Stock-based compensation charges (1) (A) 207,000 119,000
Non-recurring litigation costs (2) (B) 158,000 -
Income tax impact (C) 69,000 4,000
Non-GAAP adjusted net income $ 2,860,000 $ 2,522,000
Diluted net income per common share:
GAAP net income $ 0.04 $ 0.03
Adjustments per share (A-C) $ 0.00 $ 0.01
Non-GAAP adjusted net income $ 0.04 $ 0.04
Shares used to compute Non-GAAP adjusted net income per share - diluted 63,764,735 70,006,906
Reconciliation of Net income to EBITDA and Adjusted EBITDA: (D)
Net income $ 2,426,000 $ 2,399,000
Income tax provision 218,000 24,000
Interest expense - 4,000
Depreciation expense 333,000 331,000
EBITDA 2,977,000 2,758,000
Adjustments:
Share-based compensation expense (A) 207,000 119,000
Non-recurring litigation costs (B) 158,000 -
Adjusted EBITDA $ 3,342,000 $ 2,877,000
Adjusted EBITDA margin 32.4 % 31.0 %

(1) Stock-based compensation charges are included as follows:

Cost of revenues $ 25,000 $ 12,000
Research and development 21,000 13,000
Selling, general and administrative 161,000 94,000
$ 207,000 $ 119,000

(2) Non-recurring litigation costs are included as follows:

Cost of revenues - -
Selling, general and administrative 158,000 -
$ 158,000 $ -

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 Gross profit, Operating income, Net income, Net income per share - diluted, and EBITDA for non-cash stock-based compensation expense, and non-recurring litigation expense to derive Non-GAAP adjusted Gross profit, 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 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) Non-recurring litigation costs. See item (2) on previous page for breakdown of non-recurring litigation 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.

SOURCE: Zix Corporation

ZixCorp
Investor Relations:
Charles Messman, 323-468-2300
zixi@mkr-group.com
or
Public Relations:
Taylor Stansbury, 214-370-2134
tstansbury@zixcorp.com