Zix Corporation New Sales up 31 Percent Year to Date

Zix Corporation New Sales up 31 Percent Year to Date

Company expects full-year revenue and EPS to be at high end of guidance range

Backlog at an all-time high of $57 million


DALLAS--(BUSINESS WIRE)-- Zix Corporation (NAS: ZIXI) , the leader in email encryption services, today announced financial results for the third quarter ended Sept. 30, 2012.

Third Quarter 2012 Financial Highlights

  • Third quarter new first year orders of $2.6 million, including a one-time catch up of approximately $300,000

  • New first year orders for the nine months ended Sept. 30, 2012, were $6.8 million compared to $5.2 million for the same period last year, representing 31.0% year-over-year growth

  • Third quarter revenue of $11.0 million, an increase of 15.3%, year-over-year, the Company's 15th consecutive quarterly record in revenue

  • Third quarter GAAP net income of $0.03 per share, a decrease of 18.9%, year-over-year (1)

  • Third quarter Non-GAAP net income of $0.04 per share, an increase of 3.6%, year-over-year (1)

  • The Company generated approximately $4.6 million in cash flow from operations, a decrease of $0.1 million, year-over-year

  • Cash and cash equivalents totaled $23.0 million, an increase of $4.2 million compared to the June 30, 2012, ending cash balance

"We are pleased with our new first year order performance over the last two quarters reflecting our product leadership, channel expansion and increasing demand in the marketplace. The positive results to date have us well-positioned to achieve our full-year goals," said Rick Spurr, ZixCorp's Chairman and Chief Executive Officer.

Third Quarter 2012 Corporate Financial Summary and Other Operational Metrics

$ in Millions, except per share and % data

Q3
2012

Q3
2011

% or $

Change(1)

Revenue

$11.0

$9.6

15.3%

GAAP Gross Profit

$9.1

$7.8

17.6%

GAAP Net Income

$1.9

$2.6

(24.4)%

GAAP Net Income Per Share - Diluted

$0.03

$0.04

(18.9)%

Non-GAAP Adjusted Gross Profit(2)

$9.2

$7.8

17.8%

Non-GAAP Adjusted Net Income (2)

$2.7

$2.8

(3.4)%

Non-GAAP Adjusted Net Income Per Share-Diluted (2)

$0.04

$0.04

3.6%

Adjusted EBITDA (2) (3)

$3.1

$3.2

(3.6)%

Adjusted EBITDA Margin (2) (3)

28.2%

33.7%

(5.5)pt

New First Year Orders

$2.6

$1.6

57.6%

Total Orders

$12.7

$9.7

30.7%

Bookings Backlog (4)

$57.0

$52.6

8.4%

(1) Changes are based on actuals versus numbers shown in the columns which may reflect rounding
(2) 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

Business Highlights

  • ZixCorp enhanced its partner program with upgraded marketing and sales support and improved program infrastructure. Program changes were implemented to maximize channel growth and continue to recruit qualified value added resellers while assisting partners in lead generation and accelerating the sales cycle.

  • Growing at approximately 100,000 members per week, ZixDirectory®increased its membership to 33 million. ZixDirectory continues to be the largest email encryption community in the world and demonstrates the growing strength of ZixCorp's unique email encryption approach.

Outlook

For the fourth quarter 2012, the Company forecasts revenue to be between $11.2 million and $11.5 million and fully diluted adjusted earnings per share to be $0.03. Based on that fourth quarter guidance, the Company expects to be at or near the high end of the Company's previous revenue guidance of $42 million to $43 million for the full year 2012. The Company now expects Non-GAAP adjusted earnings per share of $0.17 for the full year, tightening its guidance toward the high end of its most recent forecast.

Conference Call Information

The Company will discuss its financial results and outlook on a conference call on Tuesday, Oct. 23, 2012, 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 1-800-688-0836 (U.S. toll-free) or 1-617-614-4072 (international) at least 15 minutes before the call and entering access code 41074246. An audio replay of the conference will be available until Oct. 31, 2012, by dialing 1-888-286-8010 (U.S. toll-free) or 1-617-801-6888 (international) and entering the access code 70887357. An archive for the webcast will also be available on the ZixCorp investor relations Web site.

About Zix Corporation

Zix Corporation (ZixCorp) provides the only email encryption services designed with your most important relationships in mind. Many of the most influential companies and government organizations use the proven ZixCorp® Email Encryption Services, including WellPoint, the SEC, and more than 1,500 hospitals and 1,800 financial institutions. ZixCorp Email Encryption Services are powered by ZixDirectory®, the largest email encryption community in the world. The tens of millions of ZixDirectory members can feel secure knowing their most important relationships are protected. 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 or earnings 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 and ZixCorp's ability to obtain and retain customers and grow revenues. 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.

ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

2012

December 31,

(unaudited)

2011

ASSETS

Current assets:

Cash and cash equivalents

$

23,031,000

$

20,680,000

Receivables, net

1,156,000

704,000

Prepaid and other current assets

1,233,000

1,422,000

Deferred tax assets

1,490,000

1,551,000

Total current assets

26,910,000

24,357,000

Property and equipment, net

2,275,000

2,228,000

Goodwill

2,161,000

2,161,000

Deferred tax assets

48,785,000

48,806,000

Other assets

-

-

Total assets

$

80,131,000

$

77,552,000

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

3,273,000

$

2,292,000

Deferred revenue

19,193,000

16,568,000

Total current liabilities

22,466,000

18,860,000

Long-term liabilities:

-

-

Deferred revenue

690,000

795,000

Deferred rent

93,000

140,000

Total long-term liabilities

783,000

935,000

Total liabilities

23,249,000

19,795,000

Total stockholders' equity

56,882,000

57,757,000

Total liabilities and stockholders' equity

$

80,131,000

$

77,552,000

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

Revenues

$

11,023,000

$

9,558,000

$

31,667,000

$

28,260,000

Cost of revenues

1,887,000

1,789,000

5,554,000

5,362,000

Gross profit

9,136,000

7,769,000

26,113,000

22,898,000

Operating expenses:

Research and development

2,046,000

1,343,000

4,988,000

3,948,000

Selling, general and administrative

5,020,000

3,754,000

13,720,000

11,310,000

Total operating expenses

7,066,000

5,097,000

18,708,000

15,258,000

Operating income

2,070,000

2,672,000

7,405,000

7,640,000

Operating margin

19

%

28

%

23

%

27

%

Other income, net

6,000

18,000

16,000

79,000

Income before income taxes

2,076,000

2,690,000

7,421,000

7,719,000

Income tax (expense) benefit

(133,000

)

(119,000

)

(409,000

)

(132,000

)

Net income

$

1,943,000

$

2,571,000

$

7,012,000

$

7,587,000

Basic income per common share:

$

0.03

$

0.04

$

0.11

$

0.12

Diluted income per common share:

$

0.03

$

0.04

$

0.11

$

0.11

Shares used in per share calculation - basic

60,896,042

64,140,926

61,671,214

65,499,763

Shares used in per share calculation - diluted

61,472,352

65,927,794

62,316,809

67,727,404

Note: EPS totals off due to rounding

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended September 30,

2012

2011

Operating activities:

Net income

$

7,012,000

$

7,587,000

Non-cash items in net income

1,874,000

1,436,000

Changes in operating assets and liabilities

3,206,000

1,638,000

Net cash provided by operating activities

12,092,000

10,661,000

Investing activities:

Purchases of property and equipment

(1,049,000

)

(1,103,000

)

(Purchase) sale of commercial paper

-

(2,290,000

)

Net cash used in investing activities

(1,049,000

)

(3,393,000

)

Financing activities:

Proceeds from exercise of stock options

308,000

1,778,000

Proceeds from exercise of warrants

-

1,259,000

Payment of license subscription note payable

-