zixi-10q_20190630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 0-17995

 

ZIX CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Texas

 

75-2216818

(State of Incorporation)

 

(I.R.S. Employer Identification Number)

 

2711 North Haskell Avenue

Suite 2200, LB 36

Dallas, Texas 75204-2960

(Address of Principal Executive Offices)

(214) 370-2000

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit  such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicated 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    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

Class

 

Outstanding at August 5, 2019

Common Stock, par value $0.01 per share

 

55,599,329

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of Each Class

 

Trading Symbols(s)

 

Name of Exchange on Which Registered

Common Stock, par value $0.01 per share

 

ZIXI

 

NASDAQ Global Market

 


 


 

INDEX

 

 

 

 

 

Page

Number

PART I — FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2019 (unaudited) and December 31, 2018

 

3

 

 

Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended June 30, 2019  and 2018

 

4

 

 

Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the three months ended March 31, 2019 and 2018 and June 30, 2019 and 2018, respectively

 

5

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2019 and 2018

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

29

Item 4.

 

Controls and Procedures

 

29

PART II — OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

30

Item 1A.

 

Risk Factors

 

30

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

Item 3.

 

Defaults Upon Senior Securities

 

30

Item 4.

 

Mine Safety Disclosures

 

30

Item 5.

 

Other Information

 

30

Item 6.

 

Exhibits

 

31

 

2


 

ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share and par value data)

 

June 30,

2019

 

 

December 31,

2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,323

 

 

$

27,109

 

Receivables, net

 

 

8,970

 

 

 

3,188

 

Prepaid and other current assets

 

 

4,609

 

 

 

3,176

 

Total current assets

 

 

24,902

 

 

 

33,473

 

Property and equipment, net

 

 

9,475

 

 

 

3,924

 

Operating lease assets

 

 

10,698

 

 

 

 

Intangible assets, net

 

 

152,586

 

 

 

15,251

 

Goodwill

 

 

173,398

 

 

 

13,783

 

Deferred tax assets

 

 

30,793

 

 

 

28,785

 

Deferred costs and other assets

 

 

10,581

 

 

 

9,424

 

Total assets

 

$

412,433

 

 

$

104,640

 

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

11,529

 

 

$

769

 

Accrued expenses

 

 

14,103

 

 

 

9,747

 

Deferred revenue

 

 

43,456

 

 

 

30,622

 

Current portion of long-term debt

 

 

1,850

 

 

 

 

Other current liabilities

 

 

3,953

 

 

 

 

Total current liabilities

 

 

74,891

 

 

 

41,138

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

 

1,414

 

 

 

1,539

 

Deferred rent

 

 

 

 

 

1,016

 

Noncurrent lease liabilities

 

 

10,575

 

 

 

 

Long-term debt

 

 

176,563

 

 

 

 

Total long-term liabilities

 

 

188,552

 

 

 

2,555

 

Total liabilities

 

 

263,443

 

 

 

43,693

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $1 par value; 100,206 shares designated, issued and outstanding in 2019 and no designated, issued or outstanding in 2018

 

 

102,347

 

 

 

 

Total preferred stock

 

 

102,347

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $1 par value, 10,000,000 shares authorized; none issued and outstanding

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 83,348,659 issued and 55,606,829 outstanding in 2019 and 81,715,330 issued and 54,186,180 outstanding in 2018

 

 

779

 

 

 

779

 

Additional paid-in capital

 

 

388,313

 

 

 

384,940

 

Treasury stock, at cost; 27,741,830 common shares in 2019 and 27,529,150 common shares in 2018

 

 

(110,206

)

 

 

(108,392

)

Accumulated deficit

 

 

(232,139

)

 

 

(216,364

)

Accumulated other comprehensive loss

 

 

(104

)

 

 

(16

)

Total stockholders’ equity

 

 

46,643

 

 

 

60,947

 

Total liabilities, preferred stock and stockholders’ equity

 

$

412,433

 

 

$

104,640

 

 

See notes to condensed consolidated financial statements.

3


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands, except share and per share data)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

45,916

 

 

$

17,500

 

 

$

75,215

 

 

$

34,153

 

Cost of revenue

 

 

20,304

 

 

 

3,806

 

 

 

31,443

 

 

 

7,319

 

Gross margin

 

 

25,612

 

 

 

13,694

 

 

 

43,772

 

 

 

26,834

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,311

 

 

 

2,978

 

 

 

9,458

 

 

 

5,956

 

Selling, general and administrative

 

 

21,872

 

 

 

8,562

 

 

 

42,136

 

 

 

16,115

 

Total operating expenses

 

 

27,183

 

 

 

11,540

 

 

 

51,594

 

 

 

22,071

 

Operating (loss) income

 

 

(1,571

)

 

 

2,154

 

 

 

(7,822

)

 

 

4,763

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income

 

 

9

 

 

 

360

 

 

 

101

 

 

 

479

 

Interest expense

 

 

(3,171

)

 

 

 

 

 

(4,425

)

 

 

 

Total other (expense) income

 

 

(3,162

)

 

 

360

 

 

 

(4,324

)

 

 

479

 

Income (loss) before income taxes

 

 

(4,733

)

 

 

2,514

 

 

 

(12,146

)

 

 

5,242

 

Income tax benefit (expense)

 

 

1,027

 

 

 

(674

)

 

 

2,175

 

 

 

(1,510

)

Net income (loss)

 

$

(3,706

)

 

$

1,840

 

 

$

(9,971

)

 

$

3,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed and accrued dividends on preferred stock

 

 

3,371

 

 

 

 

 

 

5,804

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

(7,077

)

 

$

1,840

 

 

$

(15,775

)

 

$

3,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per share attributable to common stockholders

 

$

(0.13

)

 

$

0.04

 

 

$

(0.30

)

 

$

0.07

 

Diluted income (loss) per common share attributable to common stockholders

 

$

(0.13

)

 

$

0.03

 

 

$

(0.30

)

 

$

0.07

 

Basic weighted average common shares outstanding

 

 

53,028,854

 

 

 

52,467,904

 

 

 

52,872,190

 

 

 

52,670,540

 

Diluted weighted average common shares outstanding

 

 

53,028,854

 

 

 

53,217,100

 

 

 

52,872,190

 

 

 

53,347,976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(56

)

 

 

 

 

 

(88

)

 

 

 

Comprehensive income (loss)

 

$

(3,762

)

 

$

1,840

 

 

$

(10,059

)

 

$

3,732

 

 

See notes to condensed consolidated financial statements

4


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Preferred Stock and Stockholders’ Equity

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders

 

(In thousands, except shares)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balances, December 31, 2018, as reported

 

 

 

 

$

 

 

 

81,715,330

 

 

$

779

 

 

$

384,940

 

 

$

(108,392

)

 

$

(216,364

)

 

$

(16

)

 

$

60,947

 

Issuance of Series A preferred stock in connection with private placement, net of issuance costs of $2,253

 

 

64,914

 

 

 

62,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series B preferred stock in connection with private placement, net of issuance costs of $1,204

 

 

35,086

 

 

 

33,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature of Series A preferred stock

 

 

 

 

 

1,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,407

)

 

 

 

 

 

(1,407

)

Accretion of beneficial conversion feature of Series A Preferred Shares (Participating)

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Accrued dividend on Series A preferred stock

 

 

 

 

 

563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(563

)

 

 

 

 

 

(563

)

Accrued dividend on Series B preferred stock

 

 

 

 

 

380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(380

)

 

 

 

 

 

(380

)

Redemption Accretion of Series B preferred stock

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(71

)

 

 

 

 

 

(71

)

Net issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

17,438

 

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

 

 

 

36

 

Net issuance of common stock upon vesting of restricted stock units

 

 

 

 

 

 

 

 

40,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of common stock upon vesting of performance stock units

 

 

 

 

 

 

 

 

5,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted common stock

 

 

 

 

 

 

 

 

1,116,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted performance common stock

 

 

 

 

 

 

 

 

392,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,229

 

 

 

(1,340

)

 

 

 

 

 

 

 

 

(111

)

Adjustment from foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32

)

 

 

(32

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,265

)

 

 

 

 

 

(6,265

)

Balances, March 31, 2019

 

 

100,000

 

 

$

98,976

 

 

 

83,288,103

 

 

$

779

 

 

$

386,205

 

 

$

(109,732

)

 

$

(225,062

)

 

$

(48

)

 

$

52,142

 

Issuance of Series A preferred stock for dividend on Series B preferred stock upon conversion to Series A preferred stock

 

 

206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature of Series B preferred stock

 

 

 

 

 

1,067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,067

)

 

 

 

 

 

(1,067

)

Accretion of beneficial conversion feature of Series A Preferred Shares (Participating)

 

 

 

 

 

33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33

)

 

 

 

 

 

(33

)

Accrued dividend on Series A preferred stock

 

 

 

 

 

1,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,505

)

 

 

 

 

 

(1,505

)

Accrued dividend on Series B preferred stock

 

 

 

 

 

650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(650

)

 

 

 

 

 

(650

)

Redemption Accretion of Series B preferred stock

 

 

 

 

 

116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(116

)

 

 

 

 

 

(116

)

Net issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

40,000

 

 

 

 

 

 

144

 

 

 

 

 

 

 

 

 

 

 

 

144

 

Net issuance of common stock upon vesting of restricted stock units

 

 

 

 

 

 

 

 

3,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of common stock upon vesting of performance stock units

 

 

 

 

 

 

 

 

1,223

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted common stock

 

 

 

 

 

 

 

 

16,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,964

 

 

 

(474

)

 

 

 

 

 

 

 

 

1,490

 

Adjustment from foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56

)

 

 

(56

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,706

)

 

 

 

 

 

(3,706

)

Balances, June 30, 2019

 

 

100,206

 

 

$

102,347

 

 

 

83,348,659

 

 

$

779

 

 

$

388,313

 

 

$

(110,206

)

 

$

(232,139

)

 

$

(104

)

 

$

46,643

 

 

See notes to condensed consolidated financial statements.

5


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)

Continued

 

 

 

Preferred Stock and Stockholders’ Equity

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

(In thousands, except shares)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balances, December 31, 2017, as reported

 

 

 

 

$

 

 

 

80,709,970

 

 

$

778

 

 

$

381,457

 

 

$

(102,343

)

 

$

(236,372

)

 

$

 

 

$

43,520

 

Cumulative effect adjustment from changes in accounting standards, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,564

 

 

 

 

 

 

4,564

 

Balances, January 01, 2018, as adjusted

 

 

 

 

 

 

 

 

80,709,970

 

 

 

778

 

 

 

381,457

 

 

 

(102,343

)

 

 

(231,808

)

 

 

 

 

 

48,084

 

Net issuance of common stock upon vesting of restricted stock units

 

 

 

 

 

 

 

 

50,751

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of common stock upon vesting of performance stock units

 

 

 

 

 

 

 

 

32,665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted common stock

 

 

 

 

 

 

 

 

370,322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted performance common stock

 

 

 

 

 

 

 

 

95,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

627

 

 

 

(547

)

 

 

 

 

 

 

 

 

80

 

Treasury repurchase program