EX-99.1 2 d764082dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

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Zix Reports Second Quarter 2019 Financial Results

15% Organic Revenue Growth, Cross Sell Success, Expanding Adjusted EBITDA Margins, and

Successful Completion of Integration Milestones Accelerate Company’s Growth Strategy

DALLAS — August 1, 2019 — Zix Corporation (Zix) (NASDAQ: ZIXI), a leader in email security, today announced financial results for the second quarter ended June 30, 2019.

Second Quarter 2019 Financial Highlights (results compared to the same year-ago quarter)

 

   

Revenue increased 162% to $45.9 million. Total overall organic revenue growth across Zix and AppRiver was 15%.

 

   

Annual recurring revenue (ARR), representing contract value attributable to the 12 months ending June 30, 2019, increased 162% to $193.7 million. Total overall organic ARR growth across Zix and AppRiver was 17%.

 

   

Total billings increased 7% to $46.3 million.

 

   

GAAP net loss attributable to common stockholders totaled $7.1 million compared to net income of $1.8 million. The company’s net loss attributable to common shareholders includes the effect of a deemed dividend to preferred shareholders of $3.4 million and acquisition-related expenses of $2.8 million.

 

   

GAAP fully diluted earnings (loss) per share attributable to common stockholders totaled ($0.13) compared to $0.03.

 

   

Non-GAAP adjusted net income before deemed dividends and excluding deferred tax (benefit) expense totaled $5.8 million compared to $3.9 million. The company’s Q2 2019 non-GAAP adjusted net income also excludes $2.8 million of acquisition-related expenses.

 

   

Non-GAAP adjusted net income per share before deemed dividends and excluding deferred tax (benefit) expense and acquisition-related expenses increased 51% to $0.11.

 

   

Adjusted EBITDA increased 143% to $10.7 million, representing an adjusted EBITDA margin of 23.4%.

Management Commentary

“The second quarter of 2019 demonstrated the continued solid execution of our strategy, as we delivered another quarter of strong, profitable growth and made significant progress integrating Zix and AppRiver,” said David Wagner, Zix’s Chief Executive Officer. “We achieved overall organic revenue growth of 15% and adjusted EBITDA margin of 23%—pushing us right up against ‘the rule of 40,’ and demonstrating that

 

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our business is moving in the right direction. We also delivered on our first product integration milestones ahead of schedule, and we are seeing early signs of strong cross-selling with more than 150 trials of ZixEncrypt and ZixArchive in the AppRiver channel and more than a dozen closed Office 365 deals in the Zix channel during the second quarter. Looking ahead, we are beginning to execute on our longer-term product integration objectives and we are focusing on accelerating cross-sales. Over time, this will enable us to drive higher attach rates, Annual Recurring Revenue, and revenue growth, which will further validate the AppRiver acquisition and our strategy to maximize shareholder value.”

Zix’s Chief Financial Officer Dave Rockvam added: “As our results for the quarter demonstrate, we are continuing to build a head of steam, generating significant progress integrating AppRiver, expanding our product suite into the cloud, starting new trials, securing new customers, and retaining and cross-selling our installed base. For the company as a whole, the business performance translated into organic Annual Recurring Revenue growth of 17%. Total revenue of $45.9 million helped us exceed our revenue guidance, and our adjusted EBITDA margin increased 360 basis points sequentially to more than 23%, as we continue to outperform and build a foundation for more robust profitable growth. Overall, these past six months have shown us not only the synergistic elements of Zix’s and AppRiver’s businesses, partners, products, and customers, but also that our team is driven by the vision and opportunity of building the leading cloud-based email security and productivity solutions provider in the marketplace.”

Recent Operational Highlights

 

   

Extended unified information archiving to assist AppRiver partners and customers with compliance challenges

 

   

Acquired the assets of email security provider DeliverySlip, expanding the company’s product suite and customer base, delivering cost savings, and creating additional cross-selling opportunities

 

   

Integrated and launched Office 365 productivity solutions for Zix’s direct sales teams and channel partners

 

   

Integrated and launched ZixEncrypt and ZixArchive for AppRiver’s 4,500+ MSP partners

 

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Second Quarter 2019 Corporate Financial Summary and Other Operational Metrics (1)

 

$ in Millions, except per share data

   Q2 2019     Q2 2018     Change (2)  

Revenue

   $ 45.9     $ 17.5       162.4

GAAP Net Income (Loss) Attributable to Common Stockholders

   ($ 7.1   $ 1.8       (384.6 %) 

GAAP Net Income (Loss) Per Share Attributable to Common Stockholders – Diluted

   ($ 0.13   $ 0.03       (380.6 %) 

Non-GAAP Adjusted Net Income Attributable to Common Stockholders (4)

   $ 2.5     $ 3.9       (36.8 %) 

Non-GAAP Adjusted Net Income Per Share Attributable to Common Stockholders – Diluted (4)

   $ 0.05     $ 0.07       (33.8 %) 

Non-GAAP Adjusted Net Income Before Deemed Dividends

   $ 6.7     $ 3.1       117.3

Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends—Diluted

   $ 0.13     $ 0.06       118.1

Non-GAAP Adjusted Net Income Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense and Acquisition Expense

   $ 5.8     $ 3.9       50.2

Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense and Acquisition Expense

   $ 0.11     $ 0.07       50.8

EBITDA (3)(4)

   $ 5.4     $ 3.4       55.8

EBITDA Margin

     11.7     19.7     (8.0 pts

Adjusted EBITDA (4)

   $ 10.7     $ 4.4       143.2

Adjusted EBITDA Margin (4)

     23.4     25.2     (1.8 pts

Total Billings

   $ 46.3     $ 43.1       7.3

Fiscal Six Months 2019 Corporate Financial Summary and Other Operational Metrics (1)

 

$ in Millions, except per share data

   YTD 2019      YTD 2018      Change  (2)  

Revenue

   $ 75.2      $ 34.2        120.2

GAAP Net Income (Loss) Attributable to Common Stockholders

   ($ 15.8    $ 3.8        (422.7 %) 

GAAP Net Income (Loss) Per Share Attributable to Common Stockholders – Diluted

   ($ 0.30    $ 0.07        (421.1 %) 

Non-GAAP Adjusted Net Income Attributable to Common Stockholders (4)

   $ 3.8      $ 8.2        (53.9 %) 

Non-GAAP Adjusted Net Income Per Share Attributable to Common Stockholders – Diluted (4)

   $ 0.07      $ 0.15        (52.2 %) 

Non-GAAP Adjusted Net Income Before Deemed Dividends

   $ 11.6        6.5        78.5

Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends – Diluted

   $ 0.22      $ 0.12        80.1

Non-GAAP Adjusted Net Income Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense and Acquisition Expense

   $ 9.6        8.2        17.0

Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense and Acquisition Expense—Diluted

   $ 0.18      $ 0.15        18.1

EBITDA (3)(4)

   $ 1.9      $ 6.9        (72.5 %) 

 

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EBITDA Margin

     2.5     20.3     (17.7 pts

Adjusted EBITDA (4)

   $ 16.5     $ 9.2       78.9

Adjusted EBITDA Margin (4)

     22.0     27.1     (5.1 pts

Total Billings

   $ 74.7     $ 68.0       10.0

ARR (at June 30, 2019)

   $ 193.7     $ 74.0       161.8

 

(1)

Metrics include results from AppRiver, unless otherwise specified

(2)

Changes are based on actual numbers versus numbers shown in the columns, which may reflect rounding

(3)

Earnings before interest, taxes, depreciation and amortization

(4)

A reconciliation of GAAP to non-GAAP results is included in this press release and available on the Zix investor relations website at http://investor.zixcorp.com

Financial Outlook

For the third quarter of 2019, the company forecasts revenue to range between $47.0 million and $47.5 million. The company forecasts fully diluted GAAP earnings (loss) per share to be in a range of ($0.04) and ($0.02) and fully diluted non-GAAP adjusted earnings per share to be between $0.12 and $0.14 for the third quarter of 2019. The financial outlook includes a required GAAP adjustment on the deferred revenue acquired from AppRiver.

Zix is targeting ARR of approximately $204 million to $209 million (previously $202 million to $209 million) at fiscal 2019 year end, representing a growth rate of approximately 13% to 16% (previously 12% to 16%) year-over-year. Zix management is also expecting revenue of approximately $48.0 million to $50 million (previously $47.0 million to $50.0 million) with a 25% adjusted EBITDA margin (previously 24%) in the fourth quarter of 2019.

For the fiscal year of 2019, the company is increasing its previously disclosed revenue guidance to a range of between $170.0 million to $172.0 million (previously $167.0 million to $169.0 million), representing an increase of between 141% and 144% (previously 135% and 140%) compared to fiscal year 2018. The company also updates its fully diluted GAAP earnings (loss) per share guidance to a range of between ($0.24) and ($0.21) [previously ($0.10) and $0.02] and increases its fully diluted non-GAAP adjusted earnings per share guidance to be between a range of $0.44 and $0.46 for fiscal year 2019 (previously $0.40 and $0.42). The financial outlook includes approximately 10 months of AppRiver financial results consolidated into Zix and also includes a required GAAP adjustment on the deferred revenue acquired from AppRiver. Zix is forecasting Q3, Q4 and full year 2019 to result in a GAAP net loss position and will be using an approximate basic share count of 53.3 million for Q3 and 53.5 million for Q4.

 

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Conference Call Information

Management will discuss these financial results and outlook on a conference call today (August 1, 2019) at 5:00 p.m. ET (2:00 p.m. PT).

A live webcast of the conference call will be available in the investor relations section of Zix’s website here. Alternatively, participants can access the conference call by dialing 1-855-853-6940 (U.S. toll-free) or 1-720-634-2906 (international) at least 15 minutes before the call and entering access code 7877124. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 1-949-574-3860.

An audio replay of the conference will be available for seven days, by dialing 1-855-859-2056 (U.S. toll-free) or 1-404-537-3406 (international) and entering the access code 7877124. An archive of the webcast will also be available on the Zix investor relations website.

About Zix Corporation

Zix Corporation (Zix) is a leader in email security. Trusted by the nation’s most influential institutions in healthcare, finance and government, Zix delivers a superior experience and easy-to-use solutions for email encryption and data loss prevention, advanced threat protection, unified information archiving and bring your own device (BYOD) mobile security. Focusing on the protection of business communication, Zix enables its customers to better secure data and meet compliance needs. Zix is publicly traded on the Nasdaq Global Market under the symbol ZIXI. For more information, visit www.zixcorp.com.

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Zix Company Contact

Geoff Bibby

(214) 370-2241

gbibby@zixcorp.com

  

Zix Investor Contact

Matt Glover and Najim Mostamand, CFA

Gateway Investor Relations

(949) 574-3860

ZIXI@gatewayIR.com

Statements in this release that are not purely historical facts or that necessarily depend upon future events, including statements about forecasts of sales, revenue, annual recurring revenue, EBITDA, EBITDA margin, earnings or earnings per share, potential benefits of acquisitions and strategic relationships, 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

 

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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 Zix on the date this release was issued. Zix 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 but not limited to risks or uncertainties related to the completion and integration of acquisitions, the effects of our debt and equity financing transactions, year-end adjustments to previously reported preliminary unaudited financial information, market acceptance of both existing and new Zix solutions, changing market dynamics resulting from technological change, innovation and continuing customer migration to the cloud, changes in the competitive ecosystem, and how privacy and data security laws may affect demand for Zix data protection solutions. Zix may not succeed in addressing these and other risks. Further information regarding factors that could affect Zix’s business and its financial and other results can be found in the risk factors section of Zix’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, each as filed with the Securities and Exchange Commission, as those risk factors may be supplemented in subsequent filings.

 

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ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     June 30, 2019
(unaudited)
     December 31,
2018
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 11,323,000      $ 27,109,000  

Receivables, net

     8,970,000        3,188,000  

Prepaid and other current assets

     4,609,000        3,176,000  
  

 

 

    

 

 

 

Total current assets

     24,902,000        33,473,000  

Property and equipment, net

     9,475,000        3,924,000  

Operating lease assets

     10,698,000        —    

Other assets and deferred costs

     10,581,000        9,424,000  

Intangible Assets, Net

     152,586,000        15,251,000  

Goodwill

     173,398,000        13,783,000  

Deferred tax assets

     30,793,000        28,785,000  
  

 

 

    

 

 

 

Total assets

   $  412,433,000      $ 104,640,000  
  

 

 

    

 

 

 

EQUITY

     

Current liabilities:

     

Accounts payable and accrued expenses

   $ 25,632,000      $ 10,516,000  

Deferred revenue

     43,456,000        30,622,000  

Other current liabilities

     5,803,000        —    
  

 

 

    

 

 

 

Total current liabilities

     74,891,000        41,138,000  

Long-term liabilities:

     

Deferred revenue

     1,414,000        1,539,000  

Deferred rent

     —          1,016,000  

Operating lease liabilities

     10,575,000        —    

Debt

     176,563,000        —    
  

 

 

    

 

 

 

Total long-term liabilities

     188,552,000        2,555,000  
  

 

 

    

 

 

 

Total liabilities

     263,443,000        43,693,000  

Total preferred stock

     102,347,000        —    

Total stockholders’ equity

     46,643,000        60,947,000  
  

 

 

    

 

 

 

Total liabilities, preferred stock and stockholders’ equity

   $ 412,433,000      $ 104,640,000  
  

 

 

    

 

 

 


ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2019     2018     2019     2018  

Revenue

   $  45,916,000     $  17,500,000     $ 75,215,000     $  34,153,000  

Cost of revenue

     20,304,000       3,806,000       31,443,000       7,319,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     25,612,000       13,694,000       43,772,000       26,834,000  

Operating expenses:

        

Research and development

     5,311,000       2,978,000       9,458,000       5,956,000  

Selling, general and administrative

     21,872,000       8,562,000       42,136,000       16,115,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     27,183,000       11,540,000       51,594,000       22,071,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     (1,571,000     2,154,000       (7,822,000     4,763,000  

Operating margin

     -3     12     -10     14

Other income (expense)

        

Investment and other income

     9,000       360,000       101,000       479,000  

Interest expense and other expense

     (3,167,000     —         (4,425,000     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (3,158,000     360,000       (4,324,000     479,000  

Income before income taxes

     (4,729,000     2,514,000       (12,146,000     5,242,000  

Income tax benefit (expense)

     1,027,000       (674,000     2,175,000       (1,510,000
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (3,702,000   $ 1,840,000     $ (9,971,000   $ 3,732,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Deemed and accrued dividends on preferred stock

     (3,371,000     —         (5,804,000     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to common shareholders

   $ (7,073,000   $ 1,840,000     $ (15,775,000   $ 3,732,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic (loss) income per share attributable to common shareholders:

   $ (0.13   $ 0.04     $ (0.30   $ 0.07  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted (loss) income per share attributable to common shareholders:

   $ (0.13   $ 0.03     $ (0.30   $ 0.07  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculation - basic

     53,028,854       52,467,904       52,872,190       52,670,540  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculation - diluted

     53,028,854       53,217,100       52,872,190       53,347,976  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Comprehensive income, net of tax:

        

Foreign currency translation adjustments

     (55,000     —         (88,000     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ (3,757,000   $ 1,840,000     $ (10,059,000   $ 3,732,000  
  

 

 

   

 

 

   

 

 

   

 

 

 


ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six Months Ended June 30,  
     2019     2018  

Operating activities:

    

Net (loss) income

   $ (9,971,000   $ 3,732,000  

Non-cash items in net income

     11,165,000       4,844,000  

Changes in operating assets and liabilities

     119,000       (4,173,000
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,313,000       4,403,000  

Investing activities:

    

Purchases of property and equipment and capitalized software

     (4,536,000     (1,367,000

Acquisition of business, net of cash acquired

     (283,245,000     (11,773,000
  

 

 

   

 

 

 

Net cash used in investing activities

     (287,781,000     (13,140,000

Financing activities:

    

Proceeds from issuance of series A preferred stock, net of offering costs

     96,588,000       —    

Proceeds from exercise of stock options

     180,000       33,000  

Proceeds from long term debt

     185,000,000       —    

Debt issuance costs

     (6,443,000     —    

Repayment of long term debt

     (438,000     —    

Repayment of finance lease obligations

     (770,000     —    

Payment of acquisition-related contingent consideration

     (1,540,000     (605,000

Purchase of treasury stock

     (1,814,000     (6,004,000
  

 

 

   

 

 

 

Net cash provided used in financing activities

     270,763,000       (6,576,000
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     (81,000     —    
  

 

 

   

 

 

 

(Decrease) Increase in cash and cash equivalents

     (15,786,000     (15,313,000

Cash and cash equivalents, beginning of period

     27,109,000       33,009,000  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 11,323,000     $ 17,696,000  
  

 

 

   

 

 

 


ZIX CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

           Three Months Ended
June 30,8
    Six Months Ended
June 30,
 
           2019            2018     2019            2018  

Revenue:

                

GAAP revenue

     $ 45,916,000        $  17,500,000     $  75,215,000        $  34,153,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Cost of revenue

                

GAAP cost of revenue

     $  20,304,000        $ 3,806,000     $ 31,443,000        $ 7,319,000  

Stock-based compensation charges (1)

     (A     (163,000        (80,000     (267,000        (147,000

Strategic consulting and litigation costs (2)

     (B     (243,000        —         (272,000        (1,000

Intangible Amortization (3)

     (C     (1,893,000        (63,000     (2,528,000        (140,000

Corporate separation payment (4)

     (D     (3,000        (28,000     (52,000        (28,000
    

 

 

      

 

 

   

 

 

      

 

 

 

Non-GAAP adjusted cost of revenue

     $ 18,002,000        $ 3,635,000     $ 28,324,000        $ 7,003,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Gross profit:

                

GAAP gross profit

     $ 25,612,000        $ 13,694,000     $ 43,772,000        $ 26,834,000  

Stock-based compensation charges (1)

     (A     163,000          80,000       267,000          147,000  

Strategic consulting and litigation costs (2)

     (B     243,000          —         272,000          1,000  

Intangible Amortization (3)

     (C     1,893,000          63,000       2,528,000          140,000  

Corporate separation payment (4)

     (D     3,000          28,000       52,000          28,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Non-GAAP adjusted gross profit

     $ 27,914,000        $ 13,865,000     $ 46,891,000        $ 27,150,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Research and development expense

                

GAAP research and development expense

     $ 5,311,000        $ 2,978,000     $ 9,458,000        $ 5,956,000  

Stock-based compensation charges (1)

     (A     (296,000        (112,000     (470,000        (203,000

Strategic consulting and litigation costs (2)

     (B     (164,000        (2,000     (335,000        (58,000

Intangible Amortization (3)

     (C     (76,000        (76,000     (152,000        (76,000
    

 

 

      

 

 

   

 

 

      

 

 

 

Non-GAAP adjusted research and development expense

     $ 4,800,000        $ 2,788,000     $ 8,265,000        $ 5,619,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Selling and marketing expense

                

GAAP selling and marketing expense

     $ 14,077,000        $ 5,453,000     $ 24,011,000        $ 9,831,000  

Stock-based compensation charges (1)

     (A     (686,000        (230,000     (1,118,000        (413,000

Strategic consulting and litigation costs (2)

     (B     (341,000        —         (742,000        (7,000

Intangible Amortization (3)

     (C     (3,110,000        (155,000     (4,251,000        (224,000
    

 

 

      

 

 

   

 

 

      

 

 

 

Non-GAAP adjusted selling and marketing expense

     $ 9,779,000        $ 5,068,000     $ 17,261,000        $ 9,187,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

General and administrative expense

                

GAAP general and administrative expense

     $ 7,795,000        $ 3,109,000     $ 18,125,000        $ 6,284,000  

Stock-based compensation charges (1)

     (A     (819,000        (422,000     (1,338,000        (709,000

Strategic consulting and litigation costs (2)

     (B     (2,052,000        (87,000     (8,469,000        (794,000

Corporate separation payment (4)

     (D     (449,000        —         (689,000        40,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Non-GAAP adjusted general and administrative expense

     $ 4,475,000        $ 2,600,000     $ 7,629,000        $ 4,821,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Operating income:

                

GAAP operating income

     $  (1,571,000      $ 2,154,000     $  (7,822,000      $ 4,763,000  

Stock-based compensation charges (1)

     (A     1,964,000          844,000       3,193,000          1,472,000  

Strategic consulting and litigation costs (2)

     (B     2,800,000          89,000       9,818,000          860,000  

Intangible Amortization (3)

     (C     5,079,000          294,000       6,931,000          440,000  

Corporate separation payment (4)

     (D     588,000          28,000       1,616,000          (12,000
    

 

 

      

 

 

   

 

 

      

 

 

 

Non-GAAP adjusted operating income

     $ 8,860,000        $ 3,409,000     $ 13,736,000        $ 7,523,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Adjusted Operating Margin

       19.3        19.5     18.3        22.0

Net income:

                

GAAP net (loss) income

     $  (3,702,000      $ 1,840,000     $  (9,971,000      $ 3,732,000  

Stock-based compensation charges (1)

     (A     1,964,000          844,000       3,193,000          1,472,000  

Strategic consulting and litigation costs (2)

     (B     2,800,000          89,000       9,818,000          860,000  

Intangible Amortization (3)

     (C     5,079,000          294,000       6,931,000          440,000  

Corporate separation payment (4)

     (D     588,000          28,000       1,616,000          (12,000
    

 

 

      

 

 

   

 

 

      

 

 

 

Non-GAAP adjusted net income

     $ 6,729,000        $ 3,095,000     $ 11,587,000        $ 6,492,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Deferred tax (benefit) expense

       (904,000        780,000       (2,008,000        1,692,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Non-GAAP adjusted net income excluding deferred tax (benefit) expense

     $ 5,825,000        $ 3,875,000     $ 9,579,000        $ 8,184,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Deemed and accrued dividends on preferred stock

       (3,371,000        —         (5,804,000        —    
    

 

 

      

 

 

   

 

 

      

 

 

 

Adjusted Net income attributable to common stockholders

     $ 2,454,000        $ 3,875,000     $ 3,775,000        $ 8,184,000  
    

 

 

      

 

 

   

 

 

      

 

 

 

Diluted net income per common share:

                

GAAP net income per share before deemed dividends

     $ (0.07     #      $ 0.03     $ (0.19     #      $ 0.07  

Adjustments per share

     (A-D   $ 0.20        $ 0.02     $ 0.41        $ 0.05  
    

 

 

      

 

 

   

 

 

      

 

 

 

Non-GAAP adjusted net income per share before deemed dividends

     $ 0.13        $ 0.06     $ 0.22        $ 0.12  
    

 

 

      

 

 

   

 

 

      

 

 

 

Deferred tax (benefit) expense impact to Non-GAAP adjusted net income before deemed dividends per share

     (E   $ (0.01      $ 0.01     $ (0.04      $ 0.03  
    

 

 

      

 

 

   

 

 

      

 

 

 

Non-GAAP adjusted net income before deemed dividends per share excluding deferred tax (benefit) expense

 

  $ 0.11        $ 0.07     $ 0.18        $ 0.15  
 

 

 

      

 

 

   

 

 

      

 

 

 

Deemed dividends per share impact to Non-GAAP adjusted net income

     $ (0.06      $ —       $ (0.11      $ —    
    

 

 

      

 

 

   

 

 

      

 

 

 

Adjusted Net income per share attributable to common stockholders

     $ 0.05        $ 0.07     $ 0.07        $ 0.15  
    

 

 

      

 

 

   

 

 

      

 

 

 

Shares used to compute Non-GAAP adjusted net income per share—diluted    

       53,028,854          53,217,100       52,872,190          53,347,976  
    

 

 

      

 

 

   

 

 

      

 

 

 


ZIX CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

           Three Months Ended
June 30,
    Six Months Ended
June 30,
 
           2019     2018     2019     2018  

Reconciliation of Net income to EBITDA and Adjusted EBITDA:

     (F        

Net income

     $ (3,702,000   $ 1,840,000     $ (9,971,000   $ 3,732,000  

Income tax provision

       (1,027,000     674,000       (2,175,000     1,510,000  

Interest expense

       3,171,000       —         4,425,000       —    

Depreciation

       1,551,000       577,000       2,236,000       1,175,000  

Amortization

       5,385,000       358,000       7,390,000       504,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

       5,378,000       3,449,000       1,905,000       6,921,000  

Adjustments:

          

Stock-based compensation charges (1)

     (A     1,964,000       844,000       3,193,000       1,472,000  

Strategic consulting and litigation costs (2)

     (B     2,800,000       89,000       9,818,000       860,000  

Corporate separation payment (4)

     (D     588,000       28,000       1,616,000       (12,000
    

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     $ 10,730,000     $ 4,410,000     $ 16,532,000     $ 9,241,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

       23.4     25.2     22.0     27.1

(1)   Stock-based compensation charges are included as follows:

          

Cost of revenues

     $ 163,000     $ 80,000     $ 267,000     $ 147,000  

Research and development

       296,000       112,000       470,000       203,000  

Selling and marketing

       686,000       230,000       1,118,000       413,000  

General and administrative

       819,000       422,000       1,338,000       709,000  
    

 

 

   

 

 

   

 

 

   

 

 

 
           $ 1,964,000     $ 844,000     $ 3,193,000     $1,472,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

(2)   Strategic consulting, acquisition, integration and litigation costs are included as follows:

          

Cost of revenues

       243,000             272,000       1,000  

Research and development

       164,000       2,000       335,000       58,000  

Selling and marketing

       341,000             742,000       7,000  

General and administrative

       2,052,000       87,000       8,469,000       794,000  
    

 

 

   

 

 

   

 

 

   

 

 

 
           $ 2,800,000     $ 89,000     $ 9,818,000     $ 860,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

(3)   Intangible Amortization is included as follows:

          

Cost of revenues

       1,893,000       63,000       2,528,000       140,000  

Research and development

       76,000       76,000       152,000       76,000  

Selling and marketing

       3,110,000       155,000       4,251,000       224,000  
    

 

 

   

 

 

   

 

 

   

 

 

 
           $ 5,079,000     $ 294,000     $ 6,931,000     $ 440,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

(4)   Corporate separation payment is included as follows:

          

Cost of revenues

       3,000       28,000       52,000       28,000  

Research and development

       (25,000           236,000        

Selling and marketing

       161,000             639,000        

General and administrative

       449,000             689,000       (40,000
    

 

 

   

 

 

   

 

 

   

 

 

 
           $ 588,000     $ 28,000     $ 1,616,000     $ (12,000)  
    

 

 

   

 

 

   

 

 

   

 

 

 

(5)   Net Income tax components:

          

Current tax (benefit)/expense

       (123,000     (106,000     (167,000     (182,000

Deferred tax (benefit)/expense

       (904,000     780,000       (2,008,000     1,692,000  
    

 

 

   

 

 

   

 

 

   

 

 

 
           $(1,027,000)     $ 674,000     $(2,175,000)     $1,510,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

This presentation includes Non-GAAP measures. Our Non-GAAP measures, including “Non-GAAP adjusted net income and net income per share excluding deferred tax expense” 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 Notes to Reconciliation of GAAP to Non-GAAP Financial Measures on the next page.


ZIX CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES OUTLOOK

 

     LOW     HIGH     LOW     HIGH  
     Three Months Ended
September 30,
    Three Months Ended
September 30,
    Twelve Months Ended
December 31,
    Twelve Months Ended
December 31,
 
     2019     2019     2019     2018  

Revenue:

        

GAAP revenue

   $  47,000,000     $  47,500,000     $  170,000,000     $  172,000,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per common share:

        

GAAP net income

   $ (0.04   $ (0.02   $ (0.24   $ (0.21

Stock-based compensation charges

   $ 0.04     $ 0.04     $ 0.13     $ 0.12  

Strategic consulting, acquisition and litigation costs

   $ 0.02     $ 0.01     $ 0.23     $ 0.22  

Intangible Amortization

   $ 0.10     $ 0.10     $ 0.34     $ 0.34  

Corporate separation payment

   $ 0.01     $ 0.00     $ 0.04     $ 0.03  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted net income per share

   $ 0.13     $ 0.14     $ 0.49     $ 0.51  
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax (benefit) expense

   $ (0.01   $ (0.00   $ (0.05   $ (0.04
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted net income per share excluding deferred tax (benefit) expense

   $ 0.12     $ 0.14     $ 0.44     $ 0.46  
  

 

 

   

 

 

   

 

 

   

 

 

 

Deemed dividends per share impact to Non-GAAP adjusted net income

   $ (0.04   $ (0.04   $ (0.19   $ (0.19
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net loss per share attributable to common stockholders

   $ 0.09     $ 0.10     $ 0.25     $ 0.28  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used to compute Non-GAAP adjusted net income per share—diluted

     53,279,000       53,279,000       53,138,000       53,138,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

This presentation includes Non-GAAP measures. Our Non-GAAP measures, including “Non-GAAP adjusted net income per share excluding deferred tax expense” 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 Notes to Reconciliation of GAAP to Non-GAAP Financial Measures on the next page.