8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

October 23, 2018

 

 

ZIX CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Texas   0-17995   75-2216818

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

2711 North Haskell Avenue

Suite 2200, LB 36

Dallas, Texas 75204-2960

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (214) 370-2000

Not Applicable

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02

Results of Operations and Financial Condition.

On October 23, 2018, Zix Corporation issued a press release announcing financial results for the third quarter ending September 30, 2018. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K. In accordance with General Instruction B.2 of Form 8-K, the information set forth in this Item 2.02 and in the attached Exhibit 99.1 are deemed to be “furnished” and shall not be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended.

 

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit
No.

  

Description

99.1    Press Release, dated October 23, 2018, titled “Zix Reports Third Quarter 2018 Financial Results”.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

ZIX CORPORATION

(Registrant)

Date: October 23, 2018   By:  

/s/ David E. Rockvam

    David E. Rockvam
    Vice President and Chief Financial Officer
EX-99.1
LOGO   

Exhibit 99.1

Press Release | For Distribution

 

 

Zix Reports Third Quarter 2018 Financial Results

New First Year Order Growth, Increasing Attach Rates and Rising Backlog Demonstrate Continued Successful Execution of Strategy

DALLAS — October 23, 2018 — Zix Corporation (Zix) (NASDAQ: ZIXI), a leader in email security, today announced financial results for the third quarter ended September 30, 2018.

Third Quarter 2018 Financial Highlights (results compared to the same year-ago quarter)

 

   

Revenue increased 8% to a record $17.9 million

 

   

Annual contract value (ACV) increased 13% to a record $74.9 million

 

   

New First Year Orders (NFYO) increased 24% to $2.6 million

 

   

Total orders increased 33% to $19.0 million

 

   

GAAP net income increased 29% to $2.5 million

 

   

GAAP fully diluted earnings per share increased 32% to $0.05

 

   

Cash flow from operations increased 10% to $7.4 million

 

   

Non-GAAP fully diluted earnings per share increased 23% to $0.09

 

   

Adjusted EBITDA increased 16% to $5.3 million, representing an adjusted EBITDA margin of 30%

 

   

The company ended the quarter with $24.0 million in cash and no debt

Management Commentary

“Q3 2018 represented another major milestone for Zix, as we achieved more than 20% New First Year Order growth for the second consecutive quarter,” said David Wagner, Zix’s Chief Executive Officer. “Year-to-date New First Year Orders are up by more than 20% and year-to-date total orders are up more than 25%, driven by the continued strong performance of both our direct and channel sales teams across all customer sizes. We are especially pleased with this broad-based success, as it demonstrates the repeatability of our go-to market process and validates our strategy of bundling cloud-based email security solutions. During the quarter, we secured our largest ZixProtect win so far and built on the solid new product traction generated in the first half of 2018.”

Zix’s Chief Financial Officer Dave Rockvam added: “Our record revenue and continued cost management for the quarter enabled us to beat both our top-line and bottom-line guidance. In addition to strong New First Year Order growth, we experienced another robust quarter with total orders, which were up 33% year-over-year. As expected, our growing revenue enabled us to achieve our 30% adjusted EBITDA

 

LOGO

  

 

www.zixcorp.com


LOGO   

Exhibit 99.1

Press Release | For Distribution

 

 

margin target. In addition, we experienced another quarter of solid cash flow generation, ending Q3 with a healthy balance sheet consisting of no debt and $24.0 million in cash, up $6.3 million from the end of the prior quarter. Given the company’s strong performance in the year thus far, we are once again increasing the midpoint of our 2018 revenue and GAAP earnings per share guidance, as well as our 2018 non-GAAP adjusted earnings per share guidance.”

Wagner continued: “As our results for the first three quarters indicate, 2018 is shaping up to be a really positive year for Zix. The attach rate of our new solutions continues to exceed our plan. New First Year Orders and total orders are climbing, and our retention strategies are progressing as we continue to migrate customers to our multi-tenant cloud platform. Overall, it’s been a solid year for the company; we’re executing according to plan and have good visibility heading into next year with our healthy backlog. From a macro standpoint, the market for our solutions remains strong, with multiple tailwinds in our favor. Email boxes continue to move to the cloud at an accelerating pace and remain one of the most targeted areas of cyberattack. As a result, regulation and compliance concerns continue to rise, leading customers to augment their protection with services like ours. We look forward to continuing to capitalize on these growth drivers and executing on the strategy we’ve laid out to drive returns for our shareholders.”

Recent Operational Highlights

 

   

Launched the latest version of ZixEncrypt EMS featuring a new, mobile-first unified user experience

 

   

Strengthened the Zix partner program with addition of top Google partners, which will resell the full suite of Zix solutions, including ZixArchive®, ZixEncrypt® and ZixProtect®

 

   

Awarded the International Organization for Standardization (ISO) 27001 certification, validating the strength of Zix’s solutions in preserving the security of information assets

 

LOGO

  

 

www.zixcorp.com


LOGO   

Exhibit 99.1

Press Release | For Distribution

 

 

Third Quarter 2018 Corporate Financial Summary and Other Operational Metrics

 

$ in Millions, except per share data

   Q3 2018     Q3 2017     Change (1)  

Revenue

   $ 17.9     $ 16.6       7.7

GAAP Gross Profit

   $ 14.0     $ 13.3       5.2

GAAP Net Income

   $ 2.5     $ 1.9       28.8

GAAP Net Income Per Share – Diluted

   $ 0.05     $ 0.03       31.6

EBITDA (2)

   $ 4.4     $ 3.7       17.5

EBITDA Margin

     24.4     22.3     2.0 pts  

Non-GAAP Adjusted Gross Profit (3)

   $ 14.2     $ 13.4       5.9

Non-GAAP Adjusted Net Income (3)

   $ 4.7     $ 3.9       20.6

Non-GAAP Adjusted Net Income Per Share – Diluted (3)

   $ 0.09     $ 0.07       23.2

Adjusted EBITDA (3)

   $ 5.3     $ 4.6       15.8

Adjusted EBITDA Margin (3)

     29.8     27.7     2.1 pts  

New First Year Orders

   $ 2.6     $ 2.1       23.5

Total Orders

   $ 19.0     $ 14.3       33.1

Backlog (4)

   $ 74.0     $ 75.0       (1.3 %) 

ACV

   $ 74.9     $ 66.1       13.4

Fiscal Nine Months 2018 Corporate Financial Summary and Other Operational Metrics

 

$ in Millions, except per share data

   YTD 2018     YTD 2017     Change (1)  

Revenue

   $ 52.0     $ 48.9       6.5

GAAP Gross Profit

   $ 40.8     $ 39.5       3.3

GAAP Net Income

   $ 6.2     $ 4.8       28.4

GAAP Net Income Per Share – Diluted

   $ 0.12     $ 0.09       30.5

EBITDA (2)

   $ 11.3     $ 10.4       7.9

EBITDA Margin

     21.7     21.4     0.3 pts  

Non-GAAP Adjusted Gross Profit (3)

   $ 41.4     $ 39.9       3.9

Non-GAAP Adjusted Net Income (3)

   $ 12.9     $ 11.1       16.0

Non-GAAP Adjusted Net Income Per Share – Diluted (3)

   $ 0.24     $ 0.20       17.9

Adjusted EBITDA (3)

   $ 14.6     $ 13.3       9.5

Adjusted EBITDA Margin (3)

     28.0     27.2     0.8 pts  

New First Year Orders

   $ 8.2     $ 6.8       20.1

Total Orders

   $ 55.7     $ 44.3       25.6

 

(1)

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

(2)

Earnings before interest, taxes, depreciation and amortization

(3)

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

(4)

Service contract commitments that represent future revenue to be recognized as the services are provided

 

LOGO

  

 

www.zixcorp.com


LOGO   

Exhibit 99.1

Press Release | For Distribution

 

 

Financial Outlook

For fourth quarter 2018, the company forecasts revenue to range between $18.0 million and $18.2 million. The company forecasts fully diluted GAAP earnings per share to be in a range of $0.04 and $0.05 and fully diluted non-GAAP adjusted earnings per share to be $0.09 for the fourth quarter 2018.

For fiscal year 2018, the company is increasing the midpoint of its revenue guidance range to between $70.0 million to $70.2 million, representing an increase of 7% compared to fiscal year 2017. The company forecasts fully diluted GAAP earnings per share to be between $0.16 and $0.17 and increases its fully diluted non-GAAP adjusted earnings per share guidance to $0.33 for fiscal year 2018.

Conference Call Information

Management will discuss these financial results and outlook on a conference call today (October 23, 2018) 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 6944557. If you have any difficulty connecting with the conference call, please contact Liolios Group 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 6944557. 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.

###

 

LOGO

  

 

www.zixcorp.com


LOGO   

Exhibit 99.1

Press Release | For Distribution

 

 

Zix Company Contact

Taylor Johnson

(214) 370-2134

tjohnson@zixcorp.com

  

Zix Investor Contact

Matt Glover and Najim Mostamand, CFA

Liolios Group, Inc.

(949) 574-3860

ZIXI@liolios.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, earnings or earnings per share, potential benefits of 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 market acceptance of both existing and new Zix solutions, changing market dynamics resulting from technological change and innovation, 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 financial and other results can be found in the risk factors section of Zix’s most recent annual report on Form 10-K filed with the Securities and Exchange Commission, as those risk factors may be supplemented in subsequent filings.

 

LOGO

  

 

www.zixcorp.com


ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     September 30,
2018
(unaudited)
     December 31,
2017
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 23,977,000      $ 33,009,000  

Receivables, net

     3,222,000        1,389,000  

Prepaid and other current assets

     2,826,000        3,222,000  
  

 

 

    

 

 

 

Total current assets

     30,025,000        37,620,000  

Property and equipment, net

     4,058,000        4,048,000  

Other assets and deferred costs

     8,647,000        —    

Intangible Assets, Net

     14,640,000        5,524,000  

Goodwill

     13,494,000        8,469,000  

Deferred tax assets

     21,371,000        25,647,000  
  

 

 

    

 

 

 

Total assets

   $ 92,235,000      $ 81,308,000  
  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current liabilities:

     

Accounts payable and accrued expenses

   $ 8,600,000      $ 7,154,000  

Deferred revenue

     29,425,000        28,362,000  
  

 

 

    

 

 

 

Total current liabilities

     38,025,000        35,516,000  

Long-term liabilities:

     

Deferred revenue

     2,392,000        1,087,000  

Deferred rent

     1,054,000        1,185,000  
  

 

 

    

 

 

 

Total long-term liabilities

     3,446,000        2,272,000  
  

 

 

    

 

 

 

Total liabilities

     41,471,000        37,788,000  

Total stockholders’ equity

     50,764,000        43,520,000  
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 92,235,000      $ 81,308,000  
  

 

 

    

 

 

 


ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2018     2017     2018     2017  

Revenue

   $ 17,876,000     $ 16,592,000     $ 52,029,000     $ 48,863,000  

Cost of revenue

     3,870,000       3,272,000       11,189,000       9,342,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     14,006,000       13,320,000       40,840,000       39,521,000  

Operating expenses:

        

Research and development

     2,764,000       2,916,000       8,720,000       8,047,000  

Selling, general and administrative

     8,025,000       7,514,000       24,139,000       23,282,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,789,000       10,430,000       32,859,000       31,329,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     3,217,000       2,890,000       7,981,000       8,192,000  

Operating margin

     18     17     15     17

Other income, net

     183,000       86,000       662,000       230,000  

Income before income taxes

     3,400,000       2,976,000       8,643,000       8,422,000  

Income tax expense

     (945,000     (1,070,000     (2,455,000     (3,603,000
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 2,455,000     $ 1,906,000     $ 6,188,000     $ 4,819,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic income per common share:

   $ 0.05     $ 0.04     $ 0.12     $ 0.09  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted income per common share:

   $ 0.05     $ 0.03     $ 0.12     $ 0.09  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculation - basic

     52,494,340       53,786,876       52,611,161       53,443,749  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculation - diluted

     53,474,849       54,631,407       53,389,622       54,263,258  
  

 

 

   

 

 

   

 

 

   

 

 

 


ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Nine Months Ended September 30,  
     2018     2017  

Operating activities:

    

Net income

   $ 6,188,000     $ 4,819,000  

Non-cash items in net income

     7,668,000       7,262,000  

Changes in operating assets and liabilities

     (2,094,000     1,903,000  
  

 

 

   

 

 

 

Net cash provided by operating activities

     11,762,000       13,984,000  

Investing activities:

    

Purchases of property and equipment

     (2,340,000     (1,754,000

Acquisition of business, net of cash acquired

     (11,773,000     (8,245,000
  

 

 

   

 

 

 

Net cash used in investing activities

     (14,113,000     (9,999,000

Financing activities:

    

Proceeds from exercise of stock options

     161,000       4,198,000  

Stock issuance costs

     (195,000     —    

Earn-out payment

     (605,000     —    

Purchase of treasury stock

     (6,042,000     (1,880,000
  

 

 

   

 

 

 

Net cash provided used in financing activities

     (6,681,000     2,318,000  
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (9,032,000     6,303,000  

Cash and cash equivalents, beginning of period

     33,009,000       26,457,000  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 23,977,000     $ 32,760,000  
  

 

 

   

 

 

 


ZIX CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

            Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
            2018     2017     2018     2017  

Revenue:

           

GAAP revenue

      $ 17,876,000     $ 16,592,000     $ 52,029,000     $ 48,863,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

           

GAAP cost of revenue

      $ 3,870,000     $ 3,272,000     $ 11,189,000     $ 9,342,000  

Stock-based compensation charges (1)

     (A)        (91,000     (78,000     (238,000     (226,000

Strategic consulting and litigation costs (2)

     (B)        —         (1,000     (1,000     (3,000

Intangible Amortization (3)

     (C)        (139,000     (50,000     (280,000     (100,000

Corporate separation payment (4)

     (D)        —         —         (28,000     —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted cost of revenue

      $ 3,640,000     $ 3,143,000     $ 10,642,000     $ 9,013,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit:

           

GAAP gross profit

      $ 14,006,000     $ 13,320,000     $ 40,840,000     $ 39,521,000  

Stock-based compensation charges (1)

     (A)        91,000       78,000       238,000       226,000  

Strategic consulting and litigation costs (2)

     (B)        —         1,000       1,000       3,000  

Intangible Amortization (3)

     (C)        139,000       50,000       280,000       100,000  

Corporate separation payment (4)

     (D)        —         —         28,000       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted gross profit

      $ 14,236,000     $ 13,449,000     $ 41,387,000     $ 39,850,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Research and development expense

           

GAAP research and development expense

      $ 2,764,000     $ 2,916,000     $ 8,720,000     $ 8,047,000  

Stock-based compensation charges (1)

     (A)        (130,000     (98,000     (333,000     (276,000

Strategic consulting and litigation costs (2)

     (B)        —         (52,000     (58,000     (55,000

Intangible Amortization (3)

     (C)        —         —         (76,000     —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted research and development expense

      $ 2,634,000     $ 2,766,000     $ 8,253,000     $ 7,716,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Selling and marketing expense

           

GAAP selling and marketing expense

      $ 5,223,000     $ 4,852,000     $ 15,054,000     $ 15,247,000  

Stock-based compensation charges (1)

     (A)        (239,000     (234,000     (652,000     (670,000

Strategic consulting and litigation costs (2)

     (B)        —         (1,000     (7,000     (2,000

Intangible Amortization (3)

     (C)        (157,000     (57,000     (380,000     (113,000
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted selling and marketing expense

      $ 4,827,000     $ 4,560,000     $ 14,015,000     $ 14,462,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expense

           

GAAP general and administrative expense

      $ 2,802,000     $ 2,662,000     $ 9,085,000     $ 8,035,000  

Stock-based compensation charges (1)

     (A)        (441,000     (334,000     (1,150,000     (851,000

Strategic consulting and litigation costs (2)

     (B)        (64,000     (90,000     (857,000     (760,000

Corporate separation payment (4)

     (D)        —         —         40,000       (3,000
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted general and administrative expense

      $ 2,297,000     $ 2,238,000     $ 7,118,000     $ 6,421,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating income:

           

GAAP operating income

      $ 3,217,000     $ 2,890,000     $ 7,981,000     $ 8,192,000  

Stock-based compensation charges (1)

     (A)        901,000       744,000       2,373,000       2,023,000  

Strategic consulting and litigation costs (2)

     (B)        64,000       144,000       923,000       820,000  

Intangible Amortization (3)

     (C)        296,000       107,000       736,000       213,000  

Corporate separation payment (4)

     (D)        —         —         (12,000     3,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted operating income

      $ 4,478,000     $ 3,885,000     $ 12,001,000     $ 11,251,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Operating Margin

        25.1     23.4     23.1     23.0

Net income:

           

GAAP net income

      $ 2,455,000     $ 1,906,000     $ 6,188,000     $ 4,819,000  

Stock-based compensation charges (1)

     (A)        901,000       744,000       2,373,000       2,023,000  

Strategic consulting and litigation costs (2)

     (B)        64,000       144,000       923,000       820,000  

Intangible Amortization (3)

     (C)        296,000       107,000       736,000       213,000  

Corporate separation payment (4)

     (D)        —         —         (12,000     3,000  

Income tax impact

     (E)        969,000       983,000       2,660,000       3,215,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted net income

      $ 4,685,000     $ 3,884,000     $ 12,868,000     $ 11,093,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per common share:

           

GAAP net income per share

      $ 0.05     $ 0.03     $ 0.12     $ 0.09  

Adjustments per share

     (A-E)      $ 0.04     $ 0.04     $ 0.12     $ 0.11  
     

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted net income per share

      $ 0.09     $ 0.07     $ 0.24     $ 0.20  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

        53,474,849       54,631,407       53,389,622       54,263,258  
     

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of Net income to EBITDA and Adjusted EBITDA:

     (F)           

Net income

      $ 2,455,000     $ 1,906,000     $ 6,188,000     $ 4,819,000  

Income tax provision

        945,000       1,070,000       2,455,000       3,603,000  

Depreciation

        581,000       621,000       1,756,000       1,811,000  

Amortization

        373,000       107,000       877,000       213,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

        4,354,000       3,704,000       11,276,000       10,446,000  

Adjustments:

           

Stock-based compensation charges (1)

     (A)        901,000       744,000       2,373,000       2,023,000  

Strategic consulting and litigation costs (2)

     (B)        64,000       144,000       923,000       820,000  

Corporate separation payment (4)

     (D)        —         —         (12,000     3,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

      $ 5,319,000     $ 4,592,000     $ 14,560,000     $ 13,292,000  
     

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

        29.8     27.7     28.0     27.2


ZIX CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2018      2017      2018     2017  

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

          

Cost of revenues

   $ 91,000      $ 78,000      $ 238,000     $ 226,000  

Research and development

     130,000        98,000        333,000       276,000  

Selling and marketing

     239,000        234,000        652,000       670,000  

General and administrative

     441,000        334,000        1,150,000       851,000  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 901,000      $ 744,000      $ 2,373,000     $ 2,023,000  
  

 

 

    

 

 

    

 

 

   

 

 

 

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

          

Cost of revenues

     —          1,000        1,000       3,000  

Research and development

     —          52,000        58,000       55,000  

Selling and marketing

     —          1,000        7,000       2,000  

General and administrative

     64,000        90,000        857,000       760,000  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 64,000      $ 144,000      $ 923,000     $ 820,000  
  

 

 

    

 

 

    

 

 

   

 

 

 

(3) Intangible Amortization is included as follows:

          

Cost of revenues

     139,000        50,000        280,000       100,000  

Research and development

     —          —          76,000       —    

Selling and marketing

     157,000        57,000        380,000       113,000  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 296,000      $ 107,000      $ 736,000     $ 213,000  
  

 

 

    

 

 

    

 

 

   

 

 

 

(4) Corporate separation payment is included as follows:

          

Cost of revenues

     —          —          28,000       —    

General and administrative

     —          —          (40,000     3,000  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ —        $ —        $ (12,000   $ 3,000  
  

 

 

    

 

 

    

 

 

   

 

 

 

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 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
Three Months Ended

September 30
     HIGH
Three Months Ended

September 30
     LOW
Twelve Months Ended
December 31,
     HIGH
Twelve Months Ended
December 31,
 
     2018      2018      2018      2018  

Revenue:

           

GAAP revenue

   $ 18,000,000      $ 18,200,000      $ 70,000,000      $ 70,200,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income per common share:

           

GAAP net income

   $ 0.04      $ 0.05      $ 0.16      $ 0.17  

Stock-based compensation charges

   $ 0.02      $ 0.02      $ 0.06      $ 0.06  

Strategic consulting and litigation costs

   $ 0.00      $ 0.00      $ 0.02      $ 0.02  

Intangible Amortization

   $ 0.01      $ 0.01      $ 0.02      $ 0.02  

Income tax impact

   $ 0.02      $ 0.01      $ 0.07      $ 0.06  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP adjusted net income

   $ 0.09      $ 0.09      $ 0.33      $ 0.33  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     53,734,617        53,734,617        53,479,000        53,479,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 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 per share - diluted, 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 per share - 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 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) 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.

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