zixi-10q_20190930.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 September 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 November 4, 2019

Common Stock, par value $0.01 per share

 

55,742,221

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  (unaudited)  

 

3

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)  

 

4

 

 

Condensed Consolidated Statement of Stockholders’ Equity (unaudited)

 

5

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

 

8

 

 

Notes to Condensed Consolidated Financial Statements

 

9

Item 2.

 

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

 

24

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

Item 4.

 

Controls and Procedures

 

31

PART II — OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

32

Item 1A.

 

Risk Factors

 

32

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

Item 3.

 

Defaults Upon Senior Securities

 

32

Item 4.

 

Mine Safety Disclosures

 

32

Item 5.

 

Other Information

 

32

Item 6.

 

Exhibits

 

33

 

2


 

ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share and par value data)

 

September 30,

2019

 

 

December 31,

2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,066

 

 

$

27,109

 

Receivables, net

 

 

10,106

 

 

 

3,188

 

Prepaid and other current assets

 

 

4,705

 

 

 

3,176

 

Total current assets

 

 

24,877

 

 

 

33,473

 

Property and equipment, net

 

 

9,403

 

 

 

3,924

 

Operating lease assets

 

 

10,055

 

 

 

 

Intangible assets, net

 

 

149,280

 

 

 

15,251

 

Goodwill

 

 

174,357

 

 

 

13,783

 

Deferred tax assets

 

 

30,935

 

 

 

28,785

 

Deferred costs and other assets

 

 

11,619

 

 

 

9,424

 

Total assets

 

$

410,526

 

 

$

104,640

 

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,535

 

 

$

769

 

Accrued expenses

 

 

11,228

 

 

 

9,747

 

Deferred revenue

 

 

44,564

 

 

 

30,622

 

Current portion of long-term debt

 

 

1,850

 

 

 

 

Other current liabilities

 

 

3,882

 

 

 

 

Total current liabilities

 

 

74,059

 

 

 

41,138

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

 

1,090

 

 

 

1,539

 

Deferred rent

 

 

 

 

 

1,016

 

Noncurrent lease liabilities

 

 

9,904

 

 

 

 

Long-term debt

 

 

176,407

 

 

 

 

Total long-term liabilities

 

 

187,401

 

 

 

2,555

 

Total liabilities

 

 

261,460

 

 

 

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

 

 

104,437

 

 

 

 

Total preferred stock

 

 

104,437

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 83,493,659 issued and 55,743,862 outstanding in 2019 and 81,715,330 issued and 54,186,180 outstanding in 2018

 

 

780

 

 

 

779

 

Additional paid-in capital

 

 

390,016

 

 

 

384,940

 

Treasury stock, at cost; 27,749,797 common shares in 2019 and 27,529,150 common shares in 2018

 

 

(110,273

)

 

 

(108,392

)

Accumulated deficit

 

 

(235,826

)

 

 

(216,364

)

Accumulated other comprehensive loss

 

 

(68

)

 

 

(16

)

Total stockholders’ equity

 

 

44,629

 

 

 

60,947

 

Total liabilities, preferred stock and stockholders’ equity

 

$

410,526

 

 

$

104,640

 

 

See notes to condensed consolidated financial statements.

3


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except share and per share data)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

47,833

 

 

$

17,876

 

 

$

123,049

 

 

$

52,029

 

Cost of revenue

 

 

21,422

 

 

 

3,870

 

 

 

52,865

 

 

 

11,189

 

Gross margin

 

 

26,411

 

 

 

14,006

 

 

 

70,184

 

 

 

40,840

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,590

 

 

 

2,764

 

 

 

15,048

 

 

 

8,720

 

Selling, general and administrative

 

 

19,592

 

 

 

8,025

 

 

 

61,729

 

 

 

24,139

 

Total operating expenses

 

 

25,182

 

 

 

10,789

 

 

 

76,777

 

 

 

32,859

 

Operating (loss) income

 

 

1,229

 

 

 

3,217

 

 

 

(6,593

)

 

 

7,981

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income

 

 

14

 

 

 

183

 

 

 

115

 

 

 

662

 

Interest (expense)

 

 

(2,973

)

 

 

 

 

 

(7,398

)

 

 

 

Total other (expense) income

 

 

(2,959

)

 

 

183

 

 

 

(7,283

)

 

 

662

 

Income (loss) before income taxes

 

 

(1,730

)

 

 

3,400

 

 

 

(13,876

)

 

 

8,643

 

Income tax benefit (expense)

 

 

133

 

 

 

(945

)

 

 

2,308

 

 

 

(2,455

)

Net income (loss)

 

$

(1,597

)

 

$

2,455

 

 

$

(11,568

)

 

$

6,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed and accrued dividends on preferred stock

 

 

2,090

 

 

 

 

 

 

7,894

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

(3,687

)

 

$

2,455

 

 

$

(19,462

)

 

$

6,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per share attributable to common stockholders

 

$

(0.07

)

 

$

0.05

 

 

$

(0.37

)

 

$

0.12

 

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

 

$

(0.07

)

 

$

0.05

 

 

$

(0.37

)

 

$

0.12

 

Basic weighted average common shares outstanding

 

 

53,148,078

 

 

 

52,494,340

 

 

 

52,965,163

 

 

 

52,611,161

 

Diluted weighted average common shares outstanding

 

 

53,148,078

 

 

 

53,474,849

 

 

 

52,965,163

 

 

 

53,389,622

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

35

 

 

 

 

 

 

(52

)

 

 

 

Comprehensive income (loss)

 

$

(1,562

)

 

$

2,455

 

 

$

(11,620

)

 

$

6,188

 

 

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

 

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

 

 

 

 

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44

)

 

 

 

 

 

(44

)

Accrued dividend on Series A preferred stock

 

 

 

 

 

2,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,046

)

 

 

 

 

 

(2,046

)

Net issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

30,000

 

 

 

1

 

 

 

70

 

 

 

 

 

 

 

 

 

 

 

 

71

 

5


 

Net issuance of common stock upon vesting of restricted stock units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of common stock upon vesting of performance stock units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted common stock

 

 

 

 

 

 

 

 

115,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,633

 

 

 

(67

)

 

 

 

 

 

 

 

 

1,566

 

Adjustment from foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36

 

 

 

36

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,597

)

 

 

 

 

 

(1,597

)

Balances, September 30, 2019

 

 

100,206

 

 

$

104,437

 

 

 

83,493,659

 

 

$

780

 

 

$

390,016

 

 

$

(110,273

)

 

$

(235,826

)

 

$

(68

)