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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, 2021

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 2300, 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 5, 2021

Common Stock, par value $0.01 per share

 

56,790,468

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 September 30, 2021 (unaudited) and December 31, 2020

 

3

 

 

Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2021 and 2020

 

4

 

 

Condensed Consolidated Statement of Preferred Stock and Stockholders’ Equity (unaudited) for the three months ended March 31, 2021 and 2020, June 30, 2021 and 2020, and September 30, 2021 and 2020, respectively

 

5

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2021 and 2020

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

 

21

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4.

 

Controls and Procedures

 

28

PART II — OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

29

Item 1A.

 

Risk Factors

 

29

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)

 

September 30,

2021

 

 

December 31,

2020

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38,973

 

 

$

21,362

 

Receivables, net

 

 

19,317

 

 

 

16,831

 

Prepaid and other current assets

 

 

4,394

 

 

 

5,430

 

Total current assets

 

 

62,684

 

 

 

43,623

 

Property and equipment, net

 

 

5,530

 

 

 

7,345

 

Operating lease assets

 

 

10,994

 

 

 

14,259

 

Intangible assets, net

 

 

129,959

 

 

 

144,163

 

Goodwill

 

 

195,687

 

 

 

195,013

 

Deferred tax assets

 

 

33,691

 

 

 

32,554

 

Deferred costs and other assets

 

 

12,378

 

 

 

12,767

 

Total assets

 

$

450,923

 

 

$

449,724

 

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

21,445

 

 

$

20,018

 

Accrued expenses

 

 

11,424

 

 

 

10,364

 

Deferred revenue

 

 

41,902

 

 

 

40,447

 

Current portion of long-term debt

 

 

2,205

 

 

 

2,205

 

Operating lease liabilities, current

 

 

5,802

 

 

 

5,156

 

Finance lease liabilities, current

 

 

174

 

 

 

602

 

Total current liabilities

 

 

82,952

 

 

 

78,792

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

 

593

 

 

 

1,079

 

Noncurrent operating lease liabilities

 

 

6,292

 

 

 

10,094

 

Noncurrent finance lease liabilities

 

 

14

 

 

 

114

 

Long-term debt

 

 

208,939

 

 

 

209,658

 

Total long-term liabilities

 

 

215,838

 

 

 

220,945

 

Total liabilities

 

 

298,790

 

 

 

299,737

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $1 par value; 100,206 shares designated, issued and

   outstanding in 2021 and in 2020

 

 

122,722

 

 

 

115,552

 

Total preferred stock

 

 

122,722

 

 

 

115,552

 

 

 

 

 

 

 

 

 

 

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; 85,273,243

   issued and 56,790,468 outstanding in 2021 and 85,382,484 issued and

   57,246,521 outstanding in 2020

 

 

782

 

 

 

782

 

Additional paid-in capital

 

 

413,848

 

 

 

401,646

 

Treasury stock, at cost; 28,482,775 common shares in 2021 and 28,135,963

   common shares in 2020

 

 

(115,530

)

 

 

(113,031

)

Accumulated deficit

 

 

(271,515

)

 

 

(256,548

)

Accumulated other comprehensive income

 

 

1,826

 

 

 

1,586

 

Total stockholders’ equity

 

 

29,411

 

 

 

34,435

 

Total liabilities, preferred stock and stockholders’ equity

 

$

450,923

 

 

$

449,724

 

 

See notes to unaudited condensed consolidated financial statements.

3


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(In thousands, except share and per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

64,850

 

 

$

54,840

 

 

$

187,694

 

 

$

160,611

 

Cost of revenue

 

 

36,219

 

 

 

27,928

 

 

 

103,961

 

 

 

82,265

 

Gross margin

 

 

28,631

 

 

 

26,912

 

 

 

83,733

 

 

 

78,346

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

6,429

 

 

 

5,720

 

 

 

19,371

 

 

 

16,926

 

Selling, general and administrative

 

 

22,468

 

 

 

18,813

 

 

 

66,156

 

 

 

58,058

 

Total operating expenses

 

 

28,897

 

 

 

24,533

 

 

 

85,527

 

 

 

74,984

 

Operating income (loss)

 

 

(266

)

 

 

2,379

 

 

 

(1,794

)

 

 

3,362

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income (expense)

 

 

(53

)

 

 

127

 

 

 

(58

)

 

 

104

 

Interest expense

 

 

(2,200

)

 

 

(2,035

)

 

 

(6,513

)

 

 

(7,190

)

Total other (expense) income

 

 

(2,253

)

 

 

(1,908

)

 

 

(6,571

)

 

 

(7,086

)

Loss before income taxes

 

 

(2,519

)

 

 

471

 

 

 

(8,365

)

 

 

(3,724

)

Income tax benefit (expense)

 

 

113

 

 

 

(1,196

)

 

 

568

 

 

 

244

 

Net loss

 

$

(2,406

)

 

$

(725

)

 

$

(7,797

)

 

$

(3,480

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed and accrued dividends on preferred stock

 

 

2,448

 

 

 

2,267

 

 

 

7,170

 

 

 

6,714

 

Net loss attributable to common stockholders

 

$

(4,854

)

 

$

(2,992

)

 

$

(14,967

)

 

$

(10,194

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per share attributable to common stockholders

 

$

(0.09

)

 

$

(0.05

)

 

$

(0.27

)

 

$

(0.19

)

Diluted loss per common share attributable to common stockholders

 

$

(0.09

)

 

$

(0.05

)

 

$

(0.27

)

 

$

(0.19

)

Basic weighted average common shares outstanding

 

 

55,179,775

 

 

 

54,999,114

 

 

 

54,932,530

 

 

 

53,933,721

 

Diluted weighted average common shares outstanding

 

 

55,179,775

 

 

 

54,999,114

 

 

 

54,932,530

 

 

 

53,933,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

39

 

 

 

493

 

 

 

240

 

 

 

(118

)

Comprehensive loss

 

$

(2,367

)

 

$

(232

)

 

$

(7,557

)

 

$

(3,598

)

 

See notes to unaudited 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,

   2020

 

 

100,206

 

 

$

115,552

 

 

 

85,382,484

 

 

$

782

 

 

$

401,646

 

 

$

(113,031

)

 

$

(256,548

)

 

$

1,586

 

 

$

34,435

 

Accretion of beneficial

   conversion feature of

   Series A Preferred

   Shares (Participating)

 

 

 

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

(50

)

Accrued dividend on

   Series A preferred stock

 

 

 

 

 

2,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,273

)

 

 

 

 

 

(2,273

)

Net issuance of common

   stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

65,000

 

 

 

 

 

 

251

 

 

 

 

 

 

 

 

 

 

 

 

251

 

Net issuance of common

   stock upon vesting of

   restricted stock units

 

 

 

 

 

 

 

 

17,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of common

   stock upon vesting of

   performance stock units

 

 

 

 

 

 

 

 

11,763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted

   common stock

 

 

 

 

 

 

 

 

39,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted

   performance common

   stock

 

 

 

 

 

 

 

 

(113,628

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based

   compensation costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,477

 

 

 

(2,105

)

 

 

 

 

 

 

 

 

1,372

 

Adjustment from foreign

   currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,262

)

 

 

(1,262

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,460

)

 

 

 

 

 

(2,460

)

Balances, March 31, 2021

 

 

100,206

 

 

$

117,875

 

 

 

85,402,761

 

 

$

782

 

 

$

405,374

 

 

$

(115,136

)

 

$

(261,331

)

 

$

324

 

 

$

30,013

 

Accretion of beneficial

   conversion feature of

   Series A Preferred

   Shares (Participating)

 

 

 

 

 

51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(51

)

 

 

 

 

 

(51

)

Accrued dividend on

   Series A preferred stock

 

 

 

 

 

2,348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,348

)

 

 

 

 

 

(2,348

)

Net issuance of common

   stock upon vesting of

   restricted stock units

 

 

 

 

 

 

 

 

25,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted

   common stock

 

 

 

 

 

 

 

 

(35,969

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based

   compensation costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,423

 

 

 

(318

)

 

 

 

 

 

 

 

 

4,105

 

Adjustment from foreign

   currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,463

 

 

 

1,463

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,931

)

 

 

 

 

 

(2,931

)

Balances, June 30, 2021

 

 

100,206

 

 

$

120,274

 

 

 

85,392,372

 

 

$

782

 

 

$

409,797

 

 

$

(115,454

)

 

$

(266,661

)

 

$

1,787

 

 

$

30,251

 

Accretion of beneficial

   conversion feature of

   Series A Preferred

   Shares (Participating)

 

 

 

 

 

52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52

)

 

 

 

 

 

(52

)

Accrued dividend on

   Series A preferred stock

 

 

 

 

 

2,396

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,396

)

 

 

 

 

 

(2,396

)

Net issuance of common

   stock upon vesting of

   restricted stock units

 

 

 

 

 

 

 

 

4,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted

   common stock

 

 

 

 

 

 

 

 

(89,702

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted

   performance common

   stock

 

 

 

 

 

 

 

 

(34,010

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based

   compensation costs