Second Quarter 2013 Financial Highlights
- Second quarter new first year orders of $2.4 million, compared to a near record $2.5 million in the second quarter of 2012
- Second quarter revenue of $11.8 million, an increase of 14.5% year-over-year, the Company’s 18th consecutive quarterly record in revenue
- Second quarter GAAP net income of $0.03 per share, a decrease of 30.0% year-over-year (1)
- Second quarter Non-GAAP net income of $0.04 per share, a decrease of 20.2% year-over-year (1)
- The Company generated approximately $2.5 million in cash flow from operations, a decrease of $2.5 million year-over-year
- Cash and cash equivalents totaled $26.3 million, an increase of $2.1 million compared to the Mar. 31, 2013, ending cash balance
- The year-over-year decline in earnings and cash flow was in line with public guidance and the expected result of increased investments in new products and sales and marketing
“We achieved another consecutive quarter of record revenue and bookings and continue to deliver results that meet, if not exceed, our guidance, reflecting the consistency of our business model,” said Rick Spurr, ZixCorp’s Chairman and Chief Executive Officer. “We continue to see expansion both within our existing customer base and with the addition of new customers. At the same time, we are building on our leadership in email data protection with two new products that more than triple the size of our addressable market and that we believe will lead us to even higher growth rates in 2014. ZixDLP, which addresses an enterprise’s number one data leakage problem, was launched in March. Our second new product is ZixOne, our innovative approach to BYOD. ZixOne is in beta with nearly 30 customers and receiving very positive feedback. ZixOne literally takes 30 minutes or less to connect to a company’s email Exchange server, and then individual employees can download and implement the app in less than a minute. ZixOne can solve the BYOD security issue surrounding corporate email that is a top concern of nearly every CIO and CTO in the corporate world. We remain on track to meet our September 3 general availability date and look forward to delivering this disruptive product to the marketplace.”
Second Quarter 2013 Corporate Financial Summary and Other Operational Metrics
|$ in Millions, except per share and % data||
% or $
|GAAP Gross Profit||$||9.9||$||8.5||16.5||%|
|GAAP Net Income||$||1.9||$||2.6||(29.2||)%|
|GAAP Net Income Per Share – Diluted||$||0.03||$||0.04||(30.0||)%|
|Non-GAAP Adjusted Gross Profit(2)||$||10.0||$||8.6||16.6||%|
|Non-GAAP Adjusted Net Income (2)||$||2.5||$||3.1||(19.3||)%|
|Non-GAAP Adjusted Net Income Per Share-Diluted (2)||$||0.04||$||0.05||(20.2||)%|
|Adjusted EBITDA (2) (3)||$||2.9||$||3.5||(16.1||)%|
|Adjusted EBITDA Margin (2) (3)||24.5||%||33.5||%||
|New First Year Orders||$||2.4||$||2.5||(2.7||)%|
|Bookings Backlog (4)||$||63.4||$||55.5||14.1||%|
|(1)||Changes are based on actuals versus numbers shown in the columns which may reflect rounding|
A reconciliation of GAAP to Non-GAAP adjusted results is attached to this press release and is available on our investor relations Web site at http://investor.zixcorp.com
|(3)||Adjusted earnings before interest, taxes, depreciation and amortization|
|(4)||Service contract commitments that represent future revenue to be recognized as the services are provided|
- ZixCorp unveiled ZixOneTM, a unique bring-your-own-device (BYOD) secure mobile email app. ZixOne sets itself apart in the BYOD market by meeting the employees’ desire to use their own devices for work and maintain control and privacy while giving IT the ability to secure data and meet compliance needs. Other BYOD solutions, such as mobile device management and containerization, do not meet both employee wants and corporate needs. ZixOne is scheduled for commercial availability on Sept. 3, 2013.
- Lahey Hospital & Medical Center selected ZixCorp® Email Encryption Services to provide secure email to 6,000 internal users, including physicians, nurses and departments such as financial services and information technology. ZixCorp's ease of use combined with its reputation in the healthcare industry made ZixCorp the right choice for Lahey Hospital & Medical Center.
- ZixCorp increased its competitive replacement wins in the first half of 2013 by 80% year-over-year.
- ZixCorp surpassed more than 1,900 U.S. financial services customers. In addition, ZixCorp Email Encryption remains the solution of choice for all U.S. federal financial regulators, divisions of the U.S. Treasury Department, the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
For the third quarter 2013, the Company forecasts revenue to be between $11.9 million and $12.1 million and fully diluted adjusted earnings per share to be $0.05. For the full year 2013, the Company reaffirms guidance for revenue of $48 million to $50 million and fully diluted Non-GAAP adjusted earnings per share of $0.19 to $0.20.
Conference Call Information:
The Company will discuss its financial results and outlook on a conference call on Tuesday, July 23, 2013, at 5 p.m. ET. A live webcast of the conference call will be available on our investor relations Web site at http://investor.zixcorp.com. Alternatively, participants can access the conference call by dialing 1-866-953-6860 (U.S. toll-free) or 1-617-399-3484 (international) at least 15 minutes before the call and entering access code 79066570. An audio replay of the conference will be available until July 31, 2013, by dialing 1-888-286-8010 (U.S. toll-free) or 1-617-801-6888 (international) and entering the access code 54698370. An archive for the webcast will also be available on the ZixCorp investor relations Web site.
About Zix Corporation
ZixCorp is a leader in email data protection. ZixCorp offers industry-leading email encryption, a unique email DLP solution and an innovative email BYOD solution to meet your company’s data protection and compliance needs. ZixCorp is trusted by the nation’s most influential institutions in healthcare, finance and government for easy to use secure email solutions. ZixCorp is publicly traded on the Nasdaq Global Market under the symbol ZIXI, and its headquarters are in Dallas, Texas. 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 revenue, earnings or new products 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 ZixCorp on the date this release was issued. ZixCorp 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 risks or uncertainties related to how privacy and data security law mandates may affect demand for email encryption, ZixCorp’s ability to obtain and retain customers, grow revenues and deliver new products. ZixCorp may not succeed in addressing these and other risks. Further information regarding factors that could affect ZixCorp financial and other results can be found in the risk factors section of ZixCorp’s most recent filing on Form 10-K with the Securities and Exchange Commission.
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|Cash and cash equivalents||$||26,308,000||$||22,988,000|
|Prepaid and other current assets||1,364,000||1,697,000|
|Deferred tax assets||1,608,000||1,600,000|
|Total current assets||31,055,000||27,252,000|
|Property and equipment, net||2,587,000||2,384,000|
|Deferred tax assets||50,985,000||51,052,000|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Accounts payable and accrued expenses||$||3,186,000||$||3,156,000|
|Total current liabilities||20,503,000||20,626,000|
|Total long-term liabilities||1,038,000||978,000|
|Total stockholders’ equity||65,247,000||61,245,000|
|Total liabilities and stockholders’ equity||$||86,788,000||$||82,849,000|
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS|
|Three Months Ended June 30,||Six Months Ended June 30,|
|Cost of revenue||1,903,000||1,812,000||3,839,000||3,667,000|
|Research and development||2,488,000||1,465,000||5,099,000||2,942,000|
|Selling, general and administrative||5,532,000||4,370,000||12,148,000||8,700,000|
|Total operating expenses||8,020,000||5,835,000||17,247,000||11,642,000|
|Other income, net||64,000||5,000||124,000||10,000|
|Income before income taxes||1,979,000||2,701,000||2,640,000||5,345,000|
|Income tax expense||(108,000||)||(58,000||)||(202,000||)||(276,000||)|
|Basic income per common share:||$||0.03||$||0.04||$||0.04||$||0.08|
|Diluted income per common share:||$||0.03||$||0.04||$||0.04||$||0.08|
|Shares used in per share calculation - basic||61,158,009||61,103,342||61,068,294||62,063,059|
|Shares used in per share calculation - diluted||62,451,546||61,721,859||62,242,401||62,743,297|
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS|
|Six Months Ended June 30,|
|Non-cash items in net income||1,617,000||1,177,000|
|Changes in operating assets and liabilities||(504,000||)||1,231,000|
|Net cash provided by operating activities||3,551,000||7,477,000|
|Purchases of property and equipment||(948,000||)||(622,000||)|
|Net cash used in investing activities||(948,000||)||(622,000||)|
|Proceeds from exercise of stock options||717,000||252,000|
|Purchase of Treasury Stock||-||(9,000,000||)|
|Net cash used in financing activities||717,000||(8,748,000||)|
|Increase (Decrease) in cash and cash equivalents||3,320,000||(1,893,000||)|
|Cash and cash equivalents, beginning of period||22,988,000||20,680,000|
|Cash and cash equivalents, end of period||$||26,308,000||$||18,787,000|
|RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES|
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Cost of revenue|
|GAAP cost of revenue||$||1,903,000||$||1,812,000||$||3,839,000||$||3,667,000|
|Stock-based compensation charges (1)||(A)||(45,000||)||(31,000||)||(87,000||)||(56,000||)|
|Non-GAAP adjusted cost of revenue||$||1,858,000||$||1,781,000||$||3,752,000||$||3,611,000|
|GAAP gross profit||$||9,935,000||$||8,531,000||$||19,763,000||$||16,977,000|
|Stock-based compensation charges (1)||(A)||45,000||31,000||87,000||56,000|
|Non-GAAP adjusted gross profit||$||9,980,000||$||8,562,000||$||19,850,000||$||17,033,000|
|Research and development expense|
|GAAP research and development expense||$||2,488,000||$||1,465,000||$||5,099,000||$||2,942,000|
|Stock-based compensation charges (1)||(A)||(54,000||)||(25,000||)||(106,000||)||(46,000||)|
|Non-GAAP adjusted research and development expense||$||2,434,000||$||1,440,000||$||4,993,000||$||2,896,000|
|Selling and marketing expense|
GAAP selling and marketing expense
|Stock-based compensation charges (1)||(A)||(131,000||)||(79,000||)||(252,000||)||(141,000||)|
|Non-GAAP adjusted selling and marketing expense||$||3,509,000||$||2,442,000||$||6,998,000||$||4,911,000|
|General and administrative expense|
|GAAP general and administrative expense||$||1,892,000||$||1,849,000||$||4,898,000||$||3,648,000|
|Stock-based compensation charges (1)||(A)||(214,000||)||(122,000||)||(402,000||)||(221,000||)|
|Non-recurring litigation costs (2)||(B)||(127,000||)||(178,000||)||(1,253,000||)||(336,000||)|
|Non-GAAP adjusted general and administrative expense||$||1,551,000||$||1,549,000||$||3,243,000||$||3,091,000|
|GAAP operating income||$||1,915,000||$||2,696,000||$||2,516,000||$||5,335,000|
|Stock-based compensation charges (1)||(A)||444,000||257,000||847,000||464,000|
|Non-recurring litigation costs (2)||(B)||127,000||178,000||1,253,000||336,000|
|Non-GAAP adjusted operating income||$||2,486,000||$||3,131,000||$||4,616,000||$||6,135,000|
|Adjusted Operating Margin||21.0||%||30.3||%||19.6||%||29.7||%|
|GAAP net income||$||1,871,000||$||2,643,000||$||2,438,000||$||5,069,000|
|Stock-based compensation charges (1)||(A)||444,000||257,000||847,000||464,000|
|Non-recurring litigation costs (2)||(B)||127,000||178,000||1,253,000||336,000|
|Income tax impact||(C)||30,000||(15,000||)||59,000||54,000|
|Non-GAAP adjusted net income||$||2,472,000||$||3,063,000||$||4,597,000||$||5,923,000|
|Diluted net income per common share:|
|GAAP net income||$||0.03||$||0.04||$||0.04||$||0.08|
|Adjustments per share||(A-C)||$||0.01||$||0.01||$||0.03||$||0.01|
|Non-GAAP adjusted net income||$||0.04||$||0.05||$||0.07||$||0.09|
|Shares used to compute Non-GAAP adjusted net income per share - diluted||62,451,546||61,721,859||62,242,401||62,743,297|
|Reconciliation of Net income to EBITDA and Adjusted EBITDA:||(D)|
|Income tax provision||108,000||58,000||202,000||276,000|
|Share-based compensation expense||(A)||444,000||257,000||847,000||464,000|
|Non-recurring litigation costs||(B)||127,000||178,000||1,253,000||336,000|
|Adjusted EBITDA margin||24.5||%||33.5||%||23.1||%||33.0||%|
|(1) Stock-based compensation charges are included as follows:|
|Cost of revenues||$||45,000||$||31,000||$||87,000||$||56,000|
|Research and development||54,000||25,000||106,000||46,000|
|Selling and marketing||131,000||79,000||252,000||141,000|
|General and administrative||214,000||122,000||402,000||221,000|
|(2) Non-recurring litigation costs are included as follows:|
|General and administrative||127,000||178,000||1,253,000||336,000|
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 items (A) through (D) on the next page.
|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 non-recurring litigation expense 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.
We do not provide a reconciliation of forward-looking adjusted Non-GAAP earnings per share to GAAP earnings per share. 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 non-recurring items that impact our ongoing business. See items (A) through (C) below for further information on the current quarter's reconciling items.
Items (A) through (D) 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 (D).
(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) Non-recurring litigation costs. See item (2) on previous page for breakdown of non-recurring litigation costs. The Company’s management excludes these costs when evaluating the ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results.
(C) 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.
(D) EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA adds back stock-based compensation and non-recurring litigation expenses.
- Company Earnings