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Zix Reports Fourth Quarter and Full Year 2019 Financial Results

Strong Cross-Selling Efforts Drive 15% Organic Annual Revenue Growth to $173.4 Million and 16% Organic Annual Recurring Revenue (ARR) Growth to $209.7 Million

DALLAS--(BUSINESS WIRE)--Feb. 20, 2020-- Zix Corporation (Zix) (NASDAQ: ZIXI), a leading provider of cloud email security solutions, today announced financial results for the fourth quarter and full year ended December 31, 2019.

Fourth Quarter 2019 Financial Highlights (results compared to the same year-ago quarter)

  • Revenue increased 173% to $50.4 million. Total overall organic revenue growth across Zix and AppRiver was 15%.
  • Annual recurring revenue (ARR) increased 177% to $209.7 million. Total overall organic ARR growth across Zix and AppRiver was 16%.
  • GAAP net loss attributable to common stockholders totaled ($5.2) million compared to net income of $9.2 million. The company’s net loss attributable to common shareholders includes the effect of a deemed dividend to preferred shareholders of $2.1 million and acquisition-related expenses of $4.3 million.
  • GAAP fully diluted earnings (loss) per share attributable to common stockholders totaled ($0.10) compared to $0.17.
  • Non-GAAP adjusted net income before deemed dividends and excluding deferred tax (benefit) expense totaled $6.7 million compared to $4.6 million.
  • Non-GAAP adjusted net income per share before deemed dividends and excluding deferred tax (benefit) expense increased 48% to $0.13.
  • Adjusted EBITDA increased 106% to $11.5 million, representing an adjusted EBITDA margin of 23%.

Recent Operational and Product Highlights

  • Zix added nearly 11,000 mailboxes in Q4 2019, an increase of more than 200% from Q3 2019.
  • AppRiver direct customers and Managed Service Provider partners (MSPs) started over 600 trials of ZixEncrypt and ZixArchive in Q4 2019.
  • Zix-AppRiver reported findings from its Q4 Cyberthreat Index for Business Survey, uncovering the top cybersecurity concerns and mitigation strategies among small- and medium-sized businesses in 2020.
  • ZixSuite solution was named the winner of the “Overall Enterprise Email Security Solution of the Year” award in the 2019 CyberSecurity Breakthrough Awards.
  • Appointed technology veteran John Di Leo to the new position of Chief Revenue Officer.

Management Commentary

“The fourth quarter was a strong finish to a record year for Zix,” said David Wagner, Zix’s Chief Executive Officer. “Our successful integration efforts accelerated our performance as a unified, larger company, driving combined annual growth of 146% in revenue, 96% in adjusted EBITDA dollars and 177% in ARR. We are gaining momentum across each of our go-to-market motions. In the MSP channel, we increased the ZixEncrypt and ZixArchive trial activity by 70% and grew ARR for those products by more than 100%. In the Zix channel, we added nearly 11,000 Office 365 mailboxes in Q4, an increase of more than 200% from the prior quarter alone. Our execution as an integrated team continues to validate our attach strategy, and we are well-positioned to continue our revenue and earnings growth into 2020 and beyond.”

Zix’s Chief Financial Officer Dave Rockvam commented: “In the fourth quarter we exceeded our revenue and ARR guidance, achieving 15% or greater year-over-year organic growth for both metrics for the third consecutive quarter. We are encouraged by the continued success with productivity, having added more than 77,000 net seats in the quarter, an increase of more than 9% from Q3. This strong contribution caused our gross margin percentage to compress slightly during the period and is consistent with our continued focus on delivering profitable adjusted EBITDA growth on an absolute basis. Going forward, we believe the migration of mailboxes to the cloud provides us with a highly effective, low cost, lead generation tool for our higher-margin security and compliance portfolio. In Q4, we also delivered $11.5 million of adjusted EBITDA, an increase of 106% from Q4 2018 even though we recorded slightly higher than expected expenses as we finalized the integration. Looking ahead, we are confident that our financial performance in 2019, coupled with building sales momentum, will allow us to maintain steady, predictable revenue growth of 14% to 16% and adjusted EBITDA growth of 11% to 15% in our three to five year model.”

Fourth Quarter 2019 Corporate Financial Summary and Other Operational Metrics (1)

$ in Millions, except per share data

Q4 2019

Q4 2018

Change (2)

Revenue

$50.4

$18.4

173.1%

GAAP Net Income (Loss) Attributable to Common Stockholders

($5.2)

$9.2

(155.9%)

GAAP Net Income (Loss) Per Share Attributable to Common Stockholders – Diluted

($0.10)

$0.17

(156.5%)

Non-GAAP Adjusted Net Income Attributable to Common Stockholders (4)

$4.6

$4.6

1.2%

Non-GAAP Adjusted Net Income Per Share Attributable to Common Stockholders – Diluted (4)

$0.09

$0.09

2.3%

Non-GAAP Adjusted Net Income Before Deemed Dividends(4)

$9.0

$12.0

(25.1%)

Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends - Diluted(4)

$0.17

$0.22

(24.3%)

Non-GAAP Adjusted Net Income Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense(4)

$6.7

$4.6

46.8%

Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense(4)

$0.13

$0.09

48.4%

EBITDA (3)(4)

$5.6

$3.1

78.0%

EBITDA Margin

11.1%

17.0%

(5.9 pts)

Adjusted EBITDA (4)

$11.5

$5.6

105.8%

Adjusted EBITDA Margin (4)

22.8%

30.2%

(7.4 pts)

Total Billings

49.3

44.0

12.1%

Full Year 2019 Corporate Financial Summary and Other Operational Metrics (1)

$ in Millions, except per share data

FY 2019

FY 2018

Change (2)

Revenue

$173.4

$70.5

146.1%

GAAP Net Income (Loss) Attributable to Common Stockholders

($24.6)

$15.4

(259.5%)

GAAP Net Income (Loss) Per Share Attributable to Common Stockholders – Diluted

($0.46)

$0.29

(260.9%)

Non-GAAP Adjusted Net Income Attributable to Common Stockholders (4)

$13.0

$17.5

(25.7%)

Non-GAAP Adjusted Net Income Per Share Attributable to Common Stockholders – Diluted (4)

$0.24

$0.33

(25.1%)

Non-GAAP Adjusted Net Income Before Deemed Dividends(4)

$27.4

$22.2

23.3%

Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends – Diluted (4)

$0.52

$0.41

24.3%

Non-GAAP Adjusted Net Income Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense(4)

$23.0

$17.5

31.5%

Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense - Diluted(4)

$0.43

$0.33

32.6%

EBITDA (3)(4)

$15.4

$14.4

6.8%

EBITDA Margin

8.9%

20.5%

(11.6 pts)

Adjusted EBITDA (4)

$39.5

$20.1

96.1%

Adjusted EBITDA Margin (4)

22.8%

28.6%

(5.8 pts)

Total Billings

170.2

156.4

8.9%

(1)

Metrics include results from AppRiver, unless otherwise specified

(2)

Changes are based on actual numbers versus numbers shown in the columns, which may reflect rounding

(3)

Earnings before interest, taxes, depreciation and amortization

(4)

A reconciliation of GAAP to non-GAAP results is included in this press release and available on the Zix investor relations website at http://investor.zixcorp.com

Financial Outlook

For the first quarter of 2020, the company forecasts revenue to range between $52.2 million and $52.7 million, which implies a 14% to 16% organic growth rate compared to the same year-ago quarter. The company forecasts fully diluted GAAP earnings (loss) per share (attributable to common stockholders) to be in the range of ($0.04) and ($0.03) and fully diluted non-GAAP adjusted earnings per share (attributable to common stockholders) before deemed dividends and excluding deferred tax (benefit) expense to be in the range of $0.12 and $0.13 for the first quarter of 2020. The company forecasts adjusted EBITDA to be approximately 23% of forecast revenue for Q1 2020. The per share guidance figures are based on an approximate basic share count of 53.3 million for Q1 2020.

For the full fiscal year of 2020, the company forecasts revenue to range between $220.0 million and $225.0 million, representing an increase of between 27% and 30% compared to fiscal year 2019 and between 16% and 18% on an organic basis. The company also expects fully diluted GAAP earnings (loss) per share (attributable to common stockholders) to range between ($0.10) and ($0.07) and fully diluted non-GAAP adjusted earnings per share (attributable to common stockholders) before deemed dividends and excluding deferred tax (benefit) expense guidance to be $0.56 to $0.58 for fiscal year 2020. The company forecasts adjusted EBITDA to be in the range of $51.0 million and $53.0 million (or approximately 23% to 24% of forecast revenue) for 2020, representing a year-over-year increase of between 29% and 34% compared to fiscal year 2019. The per share figures are based on an approximate basic share count of 54.2 million for 2020.

Zix expects ARR at the end of fiscal 2020 to be in the range of $243 million to $247 million, representing an organic growth rate of approximately 16 to 18% compared to fiscal 2019.

Conference Call Information

Management will discuss these financial results and outlook on a conference call today (February 20, 2020) at 5:00 p.m. ET (2:00 p.m. PT).

A live webcast of the conference call will be available in the investor relations section of Zix’s website here. Alternatively, participants can access the conference call by dialing 1-855-853-6940 (U.S. toll-free) or 1-720-634-2906 (international) at least 15 minutes before the call and entering access code 6096378. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 1-949-574-3860.

An audio replay of the conference will be available for seven days by dialing 1-855-859-2056 (U.S. toll-free) or 1-404-537-3406 (international) and entering the access code 6096378. An archive of the webcast will also be available on the Zix investor relations website.

About Zix Corporation

Zix Corporation (Zix) is a leader in email security. Trusted by the nation’s most influential institutions in healthcare, finance and government, Zix delivers a superior experience and easy-to-use solutions for email encryption and data loss prevention, advanced threat protection, unified information archiving and bring your own device (BYOD) mobile security. Focusing on the protection of business communication, Zix enables its customers to better secure data and meet compliance needs. Zix is publicly traded on the Nasdaq Global Market under the symbol ZIXI. For more information, visit 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 sales, revenue, annual recurring revenue, EBITDA, EBITDA margin, earnings or earnings per share, potential benefits of acquisitions and strategic relationships, 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 Zix on the date this release was issued. Zix 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 but not limited to risks or uncertainties related to the completion and integration of acquisitions, the effects of our debt and equity financing transactions, year-end adjustments to previously reported preliminary unaudited financial information, market acceptance of both existing and new Zix solutions, changing market dynamics resulting from technological change, innovation and continuing customer migration to the cloud, changes in the competitive ecosystem, and how privacy and data security laws may affect demand for Zix data protection solutions. Zix may not succeed in addressing these and other risks. Further information regarding factors that could affect Zix’s business and its financial and other results can be found in the risk factors section of Zix’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, each as filed with the Securities and Exchange Commission, as those risk factors may be supplemented in subsequent filings.

We monitor ARR as an operating metric, which we define as the aggregate annualized contract value attributable to recurring revenue contracts as of the end of the applicable reporting period. We calculate ARR by determining the annual or monthly revenue of subscription agreements that are active as of the end of the applicable period and multiplying by 1 or 12. We monitor this metric to aid in determining to what extent individual customer relationships, considered in the aggregate, are growing or declining in financial magnitude. ARR is an operating metric derived as of the date of determination, and should be viewed independently of revenue, unearned revenue and any other GAAP financial measure over any period.

 

ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 
 

December 31,

 

2019

December 31,

 

(unaudited)

2018

ASSETS

Current assets:

Cash and cash equivalents

$

13,349,000

$

27,109,000

Receivables, net

 

10,081,000

 

3,188,000

Prepaid and other current assets

 

4,984,000

 

3,176,000

Total current assets

 

28,414,000

 

33,473,000

Property and equipment, net

 

8,591,000

 

3,924,000

Operating lease assets

 

10,128,000

 

-

Other assets and deferred costs

 

11,968,000

 

9,424,000

Intangible Assets, Net

 

145,876,000

 

15,251,000

Goodwill

 

171,209,000

 

13,783,000

Deferred tax assets

 

36,535,000

 

28,785,000

Total assets

$

412,721,000

$

104,640,000

 
 

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

28,132,000

$

10,516,000

Deferred revenue

 

40,757,000

 

30,622,000

Other current liabilities

 

6,135,000

 

-

Total current liabilities

 

75,024,000

 

41,138,000

Long-term liabilities:

Deferred revenue

 

2,524,000

 

1,539,000

Deferred rent

 

-

 

1,016,000

Operating lease liabilities

 

9,105,000

 

-

Debt

 

178,250,000

 

-

Total long-term liabilities

 

189,879,000

 

2,555,000

Total liabilities

 

264,903,000

 

43,693,000

Total preferred stock

 

106,527,000

 

-

Total stockholders’ equity

 

41,291,000

 

60,947,000

Total liabilities, preferred stock and stockholders’ equity

$

412,721,000

$

104,640,000

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

`

 

Three Months Ended
December 31,

Twelve Months Ended
December 31,

 

2019

2018

2019

2018

Revenue

$

50,380,000

 

$

18,448,000

 

$

173,428,000

 

$

70,478,000

 

 

Cost of revenue

 

24,043,000

 

 

3,997,000

 

 

76,908,000

 

 

15,186,000

 

Gross profit

 

26,337,000

 

 

14,451,000

 

 

96,520,000

 

 

55,292,000

 

Operating expenses:

Research and development

 

5,383,000

 

 

2,603,000

 

 

20,431,000

 

 

11,323,000

 

Selling, general and administrative

 

23,502,000

 

 

9,875,000

 

 

85,230,000

 

 

33,999,000

 

Total operating expenses

 

28,885,000

 

 

12,478,000

 

 

105,661,000

 

 

45,322,000

 

 

Operating income

 

(2,548,000

)

 

1,973,000

 

 

(9,141,000

)

 

9,970,000

 

Operating margin

 

-5

%

 

11

%

 

-5

%

 

14

%

 

Other income (expense)

Investment and other income

 

6,000

 

 

92,000

 

 

121,000

 

 

754,000

 

Interest expense and other expense

 

(2,707,000

)

 

-

 

 

(10,105,000

)

 

-

 

Total other income (expense)

 

(2,701,000

)

 

92,000

 

 

(9,984,000

)

 

754,000

 

 

Income before income taxes

 

(5,249,000

)

 

2,065,000

 

 

(19,125,000

)

 

10,724,000

 

Income tax benefit (expense)

 

2,170,000

 

 

7,175,000

 

 

4,478,000

 

 

4,720,000

 

 

Net (loss) income

$

(3,079,000

)

$

9,240,000

 

$

(14,647,000

)

$

15,444,000

 

 

Deemed and accrued dividends on preferred stock

 

(2,090,000

)

 

-

 

 

(9,984,000

)

 

-

 

 

Net (loss) income attributable to common shareholders

$

(5,169,000

)

$

9,240,000

 

$

(24,631,000

)

$

15,444,000

 

 

Basic (loss) income per share attributable to common shareholders:

$

(0.10

)

$

0.18

 

$

(0.46

)

$

0.29

 

 

Diluted (loss) income per share attributable to common shareholders:

$

(0.10

)

$

0.17

 

$

(0.46

)

$

0.29

 

 

Shares used in per share calculation - basic

 

53,199,409

 

 

52,539,091

 

 

53,025,152

 

 

52,591,714

 

 

Shares used in per share calculation - diluted

 

53,199,409

 

 

53,758,033

 

 

53,025,152

 

 

53,481,295

 

 

Other Comprehensive income, net of tax:

Foreign currency translation adjustments

 

267,000

 

 

-

 

 

215,000

 

 

(16,000

)

Comprehensive (loss) income

$

(2,812,000

)

$

9,240,000

 

$

(14,432,000

)

$

15,428,000

 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
 

Twelve Months Ended December 31,

 

2019

 

2018

Operating activities:

Net (loss) income

$

(14,647,000

)

$

15,444,000

 

Non-cash items in net income

 

27,351,000

 

 

2,270,000

 

Changes in operating assets and liabilities

 

1,247,000

 

 

(1,043,000

)

Net cash provided by operating activities

 

13,951,000

 

 

16,671,000

 

 

Investing activities:

Purchases of property and equipment and capitalized software

 

(11,653,000

)

 

(4,179,000

)

Acquisition of business, net of cash acquired

 

(284,590,000

)

 

(11,773,000

)

Net cash used in investing activities

 

(296,243,000

)

 

(15,952,000

)

 

Financing activities:

Proceeds from issuance of series A preferred stock, net of offering costs

 

96,588,000

 

 

-

 

Proceeds from exercise of stock options

 

415,000

 

 

166,000

 

Proceeds from long term debt

 

187,000,000

 

 

-

 

Debt issuance costs

 

(6,444,000

)

 

(60,000

)

Repayment of long term debt

 

(1,363,000

)

 

-

 

Repayment of finance lease obligations

 

(1,707,000

)

 

-

 

Payment of acquisition-related contingent consideration

 

(3,843,000

)

 

(605,000

)

Purchase of treasury stock

 

(1,906,000

)

 

(6,049,000

)

Net cash provided used in financing activities

 

268,740,000

 

 

(6,593,000

)

 

Effect of exchange rate changes on cash

 

(208,000

)

 

(26,000

)

 

(Decrease) Increase in cash and cash equivalents

 

(13,760,000

)

 

(5,900,000

)

Cash and cash equivalents, beginning of period

 

27,109,000

 

 

33,009,000

 

Cash and cash equivalents, end of period

$

13,349,000

 

$

27,109,000

 

ZIX CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

Three Months Ended

 

Twelve Months Ended

December 31,

 

December 31,

2019

 

2018

 

 

2019

 

 

 

2018

 

Revenue:

GAAP revenue

$

50,380,000

 

$

18,448,000

 

$

173,428,000

 

$

70,478,000

 

 

Cost of revenue

GAAP cost of revenue

$

24,043,000

 

$

3,997,000

 

$

76,908,000

 

$

15,186,000

 

Stock-based compensation charges (1)

(A)

 

(147,000

)

 

(89,000

)

 

(569,000

)

 

(327,000

)

Strategic consulting and litigation costs (2)

(B)

 

(93,000

)

 

(2,000

)

 

(386,000

)

 

(3,000

)

Intangible Amortization (3)

(C)

 

(2,660,000

)

 

(89,000

)

 

(7,132,000

)

 

(369,000

)

Corporate separation payment (4)

(D)

 

-

 

 

-

 

 

(52,000

)

 

(28,000

)

Non-GAAP adjusted cost of revenue

$

21,143,000

 

$

3,817,000

 

$

68,769,000

 

$

14,459,000

 

 

Gross profit:

GAAP gross profit

$

26,337,000

 

$

14,451,000

 

$

96,520,000

 

$

55,292,000

 

Stock-based compensation charges (1)

(A)

 

147,000

 

 

89,000

 

 

569,000

 

 

327,000

 

Strategic consulting and litigation costs (2)

(B)

 

93,000

 

 

2,000

 

 

386,000

 

 

3,000

 

Intangible Amortization (3)

(C)

 

2,660,000

 

 

89,000

 

 

7,132,000

 

 

369,000

 

Corporate separation payment (4)

(D)

 

-

 

 

-

 

 

52,000

 

 

28,000

 

Non-GAAP adjusted gross profit

$

29,237,000

 

$

14,631,000

 

$

104,659,000

 

$

56,019,000

 

 

Research and development expense

GAAP research and development expense

$

5,383,000

 

$

2,603,000

 

$

20,431,000

 

$

11,323,000

 

Stock-based compensation charges (1)

(A)

 

(292,000

)

 

(136,000

)

 

(1,056,000

)

 

(469,000

)

Strategic consulting and litigation costs (2)

(B)

 

(686,000

)

 

(3,000

)

 

(1,481,000

)

 

(61,000

)

Intangible Amortization (3)

(C)

 

(76,000

)

 

(51,000

)

 

(303,000

)

 

(126,000

)

Non-GAAP adjusted research and development expense

$

4,329,000

 

$

2,413,000

 

$

17,356,000

 

$

10,667,000

 

 

Selling and marketing expense

GAAP selling and marketing expense

$

17,580,000

 

$

5,325,000

 

$

54,903,000

 

$

20,380,000

 

Stock-based compensation charges (1)

(A)

 

(350,000

)

 

(233,000

)

 

(1,941,000

)

 

(884,000

)

Strategic consulting and litigation costs (2)

(B)

 

(2,175,000

)

 

(7,000

)

 

(3,427,000

)

 

(13,000

)

Intangible Amortization (3)

(C)

 

(3,433,000

)

 

(156,000

)

 

(10,478,000

)

 

(537,000

)

Non-GAAP adjusted selling and marketing expense

$

11,451,000

 

$

4,929,000

 

$

38,246,000

 

$

18,946,000

 

 

General and administrative expense

GAAP general and administrative expense

$

5,922,000

 

$

4,550,000

 

$

30,327,000

 

$

13,619,000

 

Stock-based compensation charges (1)

(A)

 

(636,000

)

 

(487,000

)

 

(2,685,000

)

 

(1,638,000

)

Strategic consulting and litigation costs (2)

(B)

 

(1,328,000

)

 

(1,475,000

)

 

(10,755,000

)

 

(2,333,000

)

Corporate separation payment (4)

(D)

 

-

 

 

-

 

 

(689,000

)

 

40,000

 

Non-GAAP adjusted general and administrative expense

$

3,958,000

 

$

2,588,000

 

$

16,198,000

 

$

9,688,000

 

 

Operating income:

GAAP operating income

$

(2,548,000

)

$

1,973,000

 

$

(9,141,000

)

$

9,970,000

 

Stock-based compensation charges (1)

(A)

 

1,425,000

 

 

945,000

 

 

6,251,000

 

 

3,318,000

 

Strategic consulting and litigation costs (2)

(B)

 

4,282,000

 

 

1,487,000

 

 

16,049,000

 

 

2,410,000

 

Intangible Amortization (3)

(C)

 

6,169,000

 

 

296,000

 

 

17,913,000

 

 

1,032,000

 

Corporate separation payment (4)

(D)

 

171,000

 

 

-

 

 

1,787,000

 

 

(12,000

)

Non-GAAP adjusted operating income

$

9,499,000

 

$

4,701,000

 

$

32,859,000

 

$

16,718,000

 

$

-

 

Adjusted Operating Margin

 

18.9

%

 

25.5

%

 

18.9

%

 

23.7

%

 

Net income:

GAAP net (loss) income

$

(3,079,000

)

$

9,240,000

 

$

(14,647,000

)

$

15,444,000

 

Stock-based compensation charges (1)

(A)

 

1,425,000

 

 

945,000

 

 

6,251,000

 

 

3,318,000

 

Strategic consulting and litigation costs (2)

(B)

 

4,282,000

 

 

1,487,000

 

 

16,049,000

 

 

2,410,000

 

Intangible Amortization (3)

(C)

 

6,169,000

 

 

296,000

 

 

17,913,000

 

 

1,032,000

 

Corporate separation payment (4)

(D)

 

171,000

 

 

-

 

 

1,787,000

 

 

(12,000

)

Non-GAAP adjusted net income

$

8,968,000

 

$

11,968,000

 

$

27,353,000

 

$

22,192,000

 

 

Deferred tax (benefit) expense

 

(2,236,000

)

 

(7,383,000

)

 

(4,387,000

)

 

(4,722,000

)

Non-GAAP adjusted net income excluding deferred tax (benefit) expense

$

6,732,000

 

$

4,585,000

 

$

22,966,000

 

$

17,470,000

 

 

Deemed and accrued dividends on preferred stock

 

(2,090,000

)

 

-

 

 

(9,984,000

)

 

-

 

Adjusted Net income attributable to common stockholders

$

4,642,000

 

$

4,585,000

 

$

12,982,000

 

$

17,470,000

 

 

Diluted net income per common share:

GAAP net income per share before deemed dividends

$

(0.06

)

$

0.17

 

$

(0.28

)

$

0.29

 

Adjustments per share

(A-D)

$

0.23

 

$

0.05

 

$

0.80

 

$

0.13

 

Non-GAAP adjusted net income per share before deemed dividends

$

0.17

 

$

0.22

 

$

0.52

 

$

0.41

 

 

Deferred tax (benefit) expense impact to Non-GAAP adjusted net income before deemed dividends per share

(E)

$

(0.04

)

$

(0.13

)

$

(0.09

)

$

(0.08

)

Non-GAAP adjusted net income before deemed dividends per share excluding deferred tax (benefit) expense

$

0.13

 

$

0.09

 

$

0.43

 

$

0.33

 

 

Deemed dividends per share impact to Non-GAAP adjusted net income

$

(0.04

)

$

-

 

$

(0.19

)

$

-

 

Adjusted Net income per share attributable to common stockholders

$

0.09

 

$

0.09

 

$

0.24

 

$

0.33

 

 

Shares used to compute Non-GAAP adjusted net income per share - diluted

 

53,199,409

 

 

53,758,033

 

 

53,025,152

 

 

53,481,295

 

 

Reconciliation of Net income to EBITDA and Adjusted EBITDA:

(F)

Net income

$

(3,079,000

)

$

9,240,000

 

$

(14,647,000

)

$

15,444,000

 

Income tax provision

 

(2,170,000

)

 

(7,175,000

)

 

(4,478,000

)

 

(4,720,000

)

Interest expense

 

2,707,000

 

 

-

 

 

10,105,000

 

 

-

 

Depreciation

 

1,355,000

 

 

679,000

 

 

4,992,000

 

 

2,435,000

 

Amortization

 

6,772,000

 

 

393,000

 

 

19,437,000

 

 

1,270,000

 

EBITDA

 

5,585,000

 

 

3,137,000

 

 

15,409,000

 

 

14,429,000

 

 

Adjustments:

Stock-based compensation charges (1)

(A)

 

1,425,000

 

 

945,000

 

 

6,251,000

 

 

3,318,000

 

Strategic consulting and litigation costs (2)

(B)

 

4,282,000

 

 

1,487,000

 

 

16,049,000

 

 

2,410,000

 

Corporate separation payment (4)

(D)

 

171,000

 

 

-

 

 

1,787,000

 

 

(12,000

)

Adjusted EBITDA

$

11,463,000

 

$

5,569,000

 

$

39,496,000

 

$

20,145,000

 

 

Adjusted EBITDA margin

 

22.8

%

 

30.2

%

 

22.8

%

 

28.6

%

 

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

Cost of revenues

$

147,000

 

$

89,000

 

$

569,000

 

$

327,000

 

Research and development

 

292,000

 

 

136,000

 

 

1,056,000

 

 

469,000

 

Selling and marketing

 

350,000

 

 

233,000

 

 

1,941,000

 

 

884,000

 

General and administrative

 

636,000

 

 

487,000

 

 

2,685,000

 

 

1,638,000

 

$

1,425,000

 

$

945,000

 

$

6,251,000

 

$

3,318,000

 

(2) Strategic consulting, acquisition, integration and litigation costs are included as follows:

Cost of revenues

 

93,000

 

 

2,000

 

 

386,000

 

 

3,000

 

Research and development

 

686,000

 

 

3,000

 

 

1,481,000

 

 

61,000

 

Selling and marketing

 

2,175,000

 

 

7,000

 

 

3,427,000

 

 

13,000

 

General and administrative

 

1,328,000

 

 

1,475,000

 

 

10,755,000

 

 

2,333,000

 

$

4,282,000

 

$

1,487,000

 

$

16,049,000

 

$

2,410,000

 

(3) Intangible Amortization is included as follows:

Cost of revenues

 

2,660,000

 

 

89,000

 

 

7,132,000

 

 

369,000

 

Research and development

 

76,000

 

 

51,000

 

 

303,000

 

 

126,000

 

Selling and marketing

 

3,433,000

 

 

156,000

 

 

10,478,000

 

 

537,000

 

$

6,169,000

 

$

296,000

 

$

17,913,000

 

$

1,032,000

 

(4) Corporate separation payment is included as follows:

Cost of revenues

 

-

 

 

-

 

 

52,000

 

 

28,000

 

Research and development

 

-

 

 

-

 

 

235,000

 

 

-

 

Selling and marketing

 

171,000

 

 

-

 

 

811,000

 

 

-

 

General and administrative

 

-

 

 

-

 

 

689,000

 

 

(40,000

)

$

171,000

 

$

-

 

$

1,787,000

 

$

(12,000

)

 

(5) Net Income tax components:

Current tax (benefit)/expense

 

66,000

 

 

208,000

 

 

(91,000

)

 

2,000

 

Deferred tax (benefit)/expense

 

(2,236,000

)

 

(7,383,000

)

 

(4,387,000

)

 

(4,722,000

)

$

(2,170,000

)

$

(7,175,000

)

$

(4,478,000

)

$

(4,720,000

)

This presentation includes Non-GAAP measures. Our Non-GAAP measures, including "Non-GAAP adjusted net income and net income per share excluding deferred tax expense" 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 Notes to Reconciliation of GAAP to Non-GAAP Financial Measures on the next page.

ZIX CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES OUTLOOK

 
 

LOW

HIGH

LOW

HIGH

Three Months Ended

Three Months Ended

Twelve Months Ended

Twelve Months Ended

March 31,

 

March 31,

 

December 31,

 

December 31,

2020

 

2020

 

2020

 

2020

Revenue:

GAAP revenue

$

52,200,000

 

$

52,700,000

 

$

220,000,000

 

$

225,000,000

 

 

Diluted net income per common share:

GAAP net income

$

(0.03

)

$

(0.04

)

$

(0.07

)

$

(0.10

)

Stock-based compensation charges

$

0.03

 

$

0.04

 

$

0.16

 

$

0.19

 

Strategic consulting, acquisition and litigation costs

$

0.00

 

$

0.01

 

$

0.01

 

$

0.01

 

Intangible Amortization

$

0.11

 

$

0.12

 

$

0.47

 

$

0.49

 

Corporate separation payment

$

0.00

 

$

0.01

 

$

0.01

 

$

0.01

 

Non-GAAP adjusted net income per share

$

0.12

 

$

0.14

 

$

0.57

 

$

0.60

 

 

Deferred tax (benefit) expense

$

(0.01

)

$

(0.01

)

$

(0.01

)

$

(0.02

)

Non-GAAP adjusted net income before deemed dividends per share excluding deferred tax (benefit) expense

$

0.12

 

$

0.13

 

$

0.56

 

$

0.58

 

 

Deemed dividends per share impact to Non-GAAP adjusted net income

$

(0.04

)

$

(0.04

)

$

(0.15

)

$

(0.16

)

Adjusted Net income per share attributable to common stockholders

$

0.08

 

$

0.09

 

$

0.41

 

$

0.41

 

Shares used to compute Non-GAAP adjusted net income per share - diluted

 

53,300,000

 

 

53,300,000

 

 

53,500,000

 

 

53,500,000

 

This presentation includes Non-GAAP measures. Our Non-GAAP measures, including "Non-GAAP adjusted net income per share excluding deferred tax expense" 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 Notes to Reconciliation of GAAP to Non-GAAP Financial Measures 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 excluding deferred tax (benefit) expense, Net income per share - diluted, Net income per share - diluted excluding deferred tax (benefit) expense, and EBITDA for non-cash stock-based compensation expense, and strategic consulting and litigation costs 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.

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 litigation expenses and non-recurring items that impact our ongoing business. See items (A) through (E) below for further information on the current quarter's reconciling items.

Items (A) through (F) 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 excluding deferred tax (benefit) expense," "Net income per share - diluted," "Net income per share excluding deferred tax (benefit) expense- diluted," and "EBITDA" and correspond to the categories explained in further detail below under (A) through (F).

(A) Non-cash stock-based compensation charges relating to stock option grants, restricted stock, and restricted stock 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) Strategic consulting, acquisition integration and litigation costs. See item (2) on previous page. The Company’s management excludes certain board-directed consulting costs and litigation expenses when evaluating its ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results.

(C) Intangible amortization costs. See item (3) on previous page. The Company’s management excludes amortization expenses associated with the acquisition of intangible assets when evaluating its ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results.

(D) Corporate separation payment relating to employment termination benefits agreement. See item (4) on previous page. The Company’s management excludes these costs when evaluating its ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results.

(E) Deferred tax expense 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.

(F) EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA adds back stock-based compensation charges and litigation expenses.

Source: Zix Corporation

Zix Company Contact
Geoff Bibby
1-214-370-2241
gbibby@zixcorp.com

Zix Investor Contact
Matt Glover and Tom Colton
Gateway Investor Relations
1-949-574-3860
ZIXI@gatewayir.com