Exhibit 99.1
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 | | Press Release | For Distribution |
Zix Reports Fourth Quarter and Full Year 2016 Financial Results
Record Revenue Driven by Strong New Customer Orders andAdd-on Activity
DALLAS — February 9, 2017 —Zix Corporation (Zix) (NASDAQ: ZIXI), a leader in email data protection, today announced financial results for the fourth quarter and full year ended December 31, 2016.
Fourth Quarter 2016 Financial Highlights (results compared to the sameyear-ago quarter)
| | • | | Revenue increased 9% to a record $15.6 million |
| | • | | Total quarterly orders increased 8% to $15.8 million |
| | • | | Ending backlog increased 10% to a record $81.7 million |
| | • | | Annual contract value increased 8% to a record $61.7 million |
| | • | | The company ended the year with $26.5 million in cash and no debt |
Record revenue for the quarter was driven by new customer wins,add-on sales to existing customers, strong performance from ZixQuarantine and ZixOne, and healthy customer renewals. New First Year Orders were $2.7 million for the quarter. GAAP fully diluted earnings per share increased to $0.04 from $0.01 in the same quarter of 2015.Non-GAAP fully diluted earnings per share were $0.07, which was consistent with theyear-ago quarter. Adjusted EBITDA was $4.5 million, which was consistent with theyear-ago quarter.
Management Commentary
“2016 was a strong and important year for us in many regards. Not only did we achieve a company record of $60.1 million in revenue, reflecting 10% growth over the prior year, but we also experienced double-digit growth in many of our key metrics, including total orders, GAAP net income per share, and adjusted EBITDA,” saidDave Wagner, Zix’s Chief Executive Officer. “Operationally, we strengthened our number one market share position for email encryption, enhanced our core solutions even further, and made significant progress along our seven growth pillars. Q4 demonstrated positive results for the quarter and, going forward, indicate a stronger outlook for our business.
“As we look to 2017, we will continue to invest in our core encrypted email solution, with particular emphasis on our hosted platform and customer success. Additionally, we plan to invest in expanding our solutions to address adjacent markets beyond our own. These investments will help us take advantage of more opportunities to cross-sell to our base of nearly 15,000 established customers. We believe all of
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these initiatives, along with our renewed corporate identity that underscores our gold standard solutions, should enable us to build on the profitable growth momentum we’ve delivered for our shareholders during the past year.”
Zix’s Chief Financial OfficerDavid Rockvam added, “We are pleased to have achieved ourtop-line guidance and exceeded our bottom-line guidance for both the fourth quarter and full year of 2016. Strong new customer orders and upselling activity drove a company record for quarterly revenue of $15.6 million. In fact, our corporate team achieved its highest quarterly New First Year Orders level in our company’s history, supplemented by the strong quarterly performance from both ZixQuarantine and ZixOne, which together helped us achieve, in part, a record annual contract value of $61.7 million. Overall, we are encouraged by our strong finish to the year. We will keep on pursuing the opportunities that enable us to achieve our financial guidance for 2017 and continue to execute on our profitable growth strategy.”
Fourth Quarter 2016 Operational Highlights
| | • | | Secured asix-figure contract from a top five U.S. bank |
| | • | | Longstanding customer BankPlus signed three-year contract renewal forZix Email Encryption |
| | • | | Unveiled email filter to assist South African organizations in complying with the Protection of Personal Information (POPI) Act |
| | • | | Enhanced email encryption capabilities with the latest release ofZixPort® and an update toZixGateway® Hosted |
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| | www.zixcorp.com |
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| | | Press Release | For Distribution |
Fourth Quarter 2016 Corporate Financial Summary and Other Operational Metrics
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$ in Millions, except per share data | | Q4 2016 | | | Q4 2015 | | | Change (1) | |
Revenue | | $ | 15.6 | | | $ | 14.3 | | | | 8.7 | % |
GAAP Gross Profit | | $ | 12.9 | | | $ | 11.8 | | | | 9.0 | % |
GAAP Net Income | | $ | 1.9 | | | $ | 0.8 | | | | 142.9 | % |
GAAP Net Income Per Share – Diluted | | $ | 0.04 | | | $ | 0.01 | | | | 156.8 | % |
EBITDA(2) | | $ | 4.1 | | | $ | 1.8 | | | | 120.2 | % |
EBITDA Margin | | | 26.0 | % | | | 12.8 | % | | | 13.2 | pts |
Non-GAAP Adjusted Gross Profit(3) | | $ | 12.9 | | | $ | 11.9 | | | | 8.7 | % |
Non-GAAP Adjusted Net Income(3) | | $ | 3.7 | | | $ | 4.0 | | | | (7.1 | %) |
Non-GAAP Adjusted Net Income Per Share – Diluted(3) | | $ | 0.07 | | | $ | 0.07 | | | | (1.7 | %) |
Adjusted EBITDA(3) | | $ | 4.5 | | | $ | 4.5 | | | | 0.8 | % |
Adjusted EBITDA Margin | | | 29.1 | % | | | 31.4 | % | | | (2.3 | pts) |
New First Year Orders | | $ | 2.7 | | | $ | 2.9 | | | | (6.7 | %) |
Total Orders | | $ | 15.8 | | | $ | 14.7 | | | | 8.1 | % |
Backlog(4) | | $ | 81.7 | | | $ | 74.2 | | | | 10.1 | % |
Fiscal 2016 Corporate Financial Summary and Other Operational Metrics
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$ in Millions, except per share data | | 2016 | | | 2015 | | | Change (1) | |
Revenue | | $ | 60.1 | | | $ | 54.7 | | | | 9.9 | % |
GAAP Gross Profit | | $ | 49.6 | | | $ | 45.1 | | | | 10.0 | % |
GAAP Net Income | | $ | 5.8 | | | $ | 5.0 | | | | 16.4 | % |
GAAP Net Income Per Share – Diluted | | $ | 0.11 | | | $ | 0.09 | | | | 23.0 | % |
EBITDA(2) | | $ | 11.9 | | | $ | 10.3 | | | | 15.1 | % |
EBITDA Margin | | | 19.7 | % | | | 18.8 | % | | | 0.9 | pts |
Non-GAAP Adjusted Gross Profit(3) | | $ | 49.8 | | | $ | 45.3 | | | | 9.9 | % |
Non-GAAP Adjusted Net Income(3) | | $ | 14.0 | | | $ | 12.3 | | | | 14.0 | % |
Non-GAAP Adjusted Net Income Per Share – Diluted(3) | | $ | 0.26 | | | $ | 0.21 | | | | 20.5 | % |
Adjusted EBITDA(3) | | $ | 16.9 | | | $ | 14.9 | | | | 13.6 | % |
Adjusted EBITDA Margin | | | 28.1 | % | | | 27.2 | % | | | 0.9 | pts |
New First Year Orders | | $ | 9.5 | | | $ | 10.2 | | | | (6.2 | %) |
Total Orders | | $ | 68.6 | | | $ | 61.0 | | | | 12.3 | % |
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| | | Press Release | For Distribution |
| (1) | Changes are based on actual numbers versus numbers shown in the columns, which may reflect rounding |
| (2) | Adjusted earnings before interest, taxes, depreciation and amortization |
| (3) | A reconciliation of GAAP tonon-GAAP adjusted results is included in this press release and available on our investor relations Web page athttp://investor.zixcorp.com |
| (4) | Service contract commitments that represent future revenue to be recognized as the services are provided |
Longer-term, the company is focused on driving profitable growth through its seven key growth pillars, which include: securing new customers, nurturing OEM partnerships, expanding the number of licenses within its installed base, upselling additional products to existing customers, increasing renewal rates, investing in its core email encryption solutions, and exploring adjacent and English-speaking international markets. The company will adopt its newly formed Customer Success model, which emphasizes three of these pillars, namely driving new customer wins, securingadd-on orders from existing customers, and generating higher overall retention rates.
Financial Outlook
For the first quarter 2017, the company forecasts revenue to range between $15.6 million and $15.7 million, representing an increase of 9% to 10% year-over-year. The company forecasts fully diluted GAAP earnings per share to be in a range of $0.02 and $0.03 and fully dilutednon-GAAP adjusted earnings per share to be $0.06 for the first quarter 2017.
For all of fiscal 2017, the company anticipates revenue to range between $64.5 million and $66.0 million, representing an increase of 7% to 10% compared to fiscal 2016. The company forecasts fully diluted GAAP earnings per share to be between $0.10 and $0.12 and fully dilutednon-GAAP adjusted earnings per share to be $0.28 for fiscal 2017.
Conference Call Information
Management will discuss these financial results and outlook on a conference call today (February 9, 2017) at 5 p.m. ET (2 p.m. PT).
A live webcast of the conference call will be available in the investor section of Zix’s websitehere. Alternatively, participants can access the conference call by dialing1-855-853-6940 (U.S. toll-free) or1-720-634-2906 (international) at least 15 minutes before the call and entering access code 53379838. If you have any difficulty connecting with the conference call, please contact Liolios Group at1-949-574-3860.
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| | www.zixcorp.com |
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| | | Press Release | For Distribution |
An audio replay of the conference will be available for seven days, by dialing1-855-859-2056 (U.S. toll-free) or1-404-537-3406 (international) and entering the access code 53379838. An archive of the webcast will also be available in the investor section of the company’s websitehere.
About Zix Corporation
Zix Corporation (Zix) is a leader in email encryption. Zix also offers superior solutions in email data loss prevention and email bring your own device (BYOD) security. Zix is trusted by the nation’s most influential institutions in healthcare, finance and government foreasy-to-use secure email solutions that meet data protection and compliance needs. Zix is publicly traded on the Nasdaq Global Market under the symbol ZIXI. For more information, visitzixcorp.com.
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Zix Company Contact Taylor Johnson (214)370-2134 tjohnson@zixcorp.com | | Zix Investor Contact Matt Glover and Najim Mostamand Liolios Group, Inc. (949)574-3860 ZIXI@liolios.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 or earnings, potential benefits of 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 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 risks or uncertainties related to market acceptance of new Zix solutions and how privacy and data security laws may affect demand for Zix email data protection solutions. Zix may not succeed in addressing these and other risks. Further information regarding factors that could affect Zix financial and other results can be found in the risk factors section of Zix’s most recent filing on Form10-K with the Securities and Exchange Commission.
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ZIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | |
| | | December 31, | | | | |
| | | 2016 | | | December 31, | |
| | | (unaudited) | | | 2015 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 26,457,000 | | | $ | 28,664,000 | |
Receivables, net | | | 1,209,000 | | | | 498,000 | |
Prepaid and other current assets | | | 2,829,000 | | | | 2,908,000 | |
| | | | | | | | |
Total current assets | | | 30,495,000 | | | | 32,070,000 | |
Property and equipment, net | | | 3,976,000 | | | | 4,143,000 | |
Goodwill | | | 2,161,000 | | | | 2,161,000 | |
Deferred tax assets | | | 45,726,000 | | | | 48,912,000 | |
| | | | | | | | |
Total assets | | $ | 82,358,000 | | | $ | 87,286,000 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 4,720,000 | | | $ | 5,067,000 | |
Deferred revenue | | | 25,773,000 | | | | 23,182,000 | |
| | | | | | | | |
Total current liabilities | | | 30,493,000 | | | | 28,249,000 | |
Long-term liabilities: | | | | | | | | |
Deferred revenue | | | 1,448,000 | | | | 839,000 | |
Deferred rent | | | 1,347,000 | | | | 1,426,000 | |
| | | | | | | | |
Total long-term liabilities | | | 2,795,000 | | | | 2,265,000 | |
| | | | | | | | |
Total liabilities | | | 33,288,000 | | | | 30,514,000 | |
Total stockholders’ equity | | | 49,070,000 | | | | 56,772,000 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 82,358,000 | | | $ | 87,286,000 | |
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ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended December 31, | | | Twelve Months Ended December 31, | |
| | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
Revenue | | $ | 15,578,000 | | | $ | 14,327,000 | | | $ | 60,144,000 | | | $ | 54,713,000 | |
Cost of revenue | | | 2,709,000 | | | | 2,522,000 | | | | 10,533,000 | | | | 9,593,000 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 12,869,000 | | | | 11,805,000 | | | | 49,611,000 | | | | 45,120,000 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | | 2,435,000 | | | | 2,074,000 | | | | 9,553,000 | | | | 8,317,000 | |
Selling, general and administrative | | | 7,086,000 | | | | 8,506,000 | | | | 30,742,000 | | | | 28,887,000 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 9,521,000 | | | | 10,580,000 | | | | 40,295,000 | | | | 37,204,000 | |
| | | | | | | | | | | | | | | | |
Operating income | | | 3,348,000 | | | | 1,225,000 | | | | 9,316,000 | | | | 7,916,000 | |
Operating margin | | | 21 | % | | | 9 | % | | | 15 | % | | | 14 | % |
Other income, net | | | 30,000 | | | | 82,000 | | | | 213,000 | | | | 244,000 | |
Income before income taxes | | | 3,378,000 | | | | 1,307,000 | | | | 9,529,000 | | | | 8,160,000 | |
Income tax expense | | | (1,440,000 | ) | | | (509,000 | ) | | | (3,692,000 | ) | | | (3,144,000 | ) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 1,938,000 | | | $ | 798,000 | | | $ | 5,837,000 | | | $ | 5,016,000 | |
| | | | | | | | | | | | | | | | |
Basic income per common share: | | $ | 0.04 | | | $ | 0.01 | | | $ | 0.11 | | | $ | 0.09 | |
| | | | | | | | | | | | | | | | |
Diluted income per common share: | | $ | 0.04 | | | $ | 0.01 | | | $ | 0.11 | | | $ | 0.09 | |
| | | | | | | | | | | | | | | | |
Shares used in per share calculation - basic | | | 52,815,271 | | | | 55,537,228 | | | | 53,819,772 | | | | 56,421,833 | |
| | | | | | | | | | | | | | | | |
Shares used in per share calculation - diluted | | | 53,490,290 | | | | 56,554,355 | | | | 54,395,145 | | | | 57,476,006 | |
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ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | |
| | | Twelve Months Ended December 31, | |
| | | 2016 | | | 2015 | |
Operating activities: | | | | | | | | |
Net income | | $ | 5,837,000 | | | $ | 5,016,000 | |
Non-cash items in net income | | | 7,272,000 | | | | 7,068,000 | |
Changes in operating assets and liabilities | | | 2,142,000 | | | | 3,533,000 | |
| | | | | | | | |
Net cash provided by operating activities | | | 15,251,000 | | | | 15,617,000 | |
Investing activities: | | | | | | | | |
Purchases of property and equipment | | | (2,136,000 | ) | | | (1,951,000 | ) |
| | | | | | | | |
Net cash used in investing activities | | | (2,136,000 | ) | | | (1,951,000 | ) |
Financing activities: | | | | | | | | |
Proceeds from exercise of stock options | | | 205,000 | | | | 8,674,000 | |
Purchase of Treasury Stock | | | (15,527,000 | ) | | | (15,361,000 | ) |
| | | | | | | | |
Net cash used in financing activities | | | (15,322,000 | ) | | | (6,687,000 | ) |
| | | | | | | | |
Increase (Decrease) in cash and cash equivalents | | | (2,207,000 | ) | | | 6,979,000 | |
Cash and cash equivalents, beginning of period | | | 28,664,000 | | | | 21,685,000 | |
| | | | | | | | |
Cash and cash equivalents, end of period | | $ | 26,457,000 | | | $ | 28,664,000 | |
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ZIX CORPORATION
RECONCILIATION OF GAAP TONON-GAAP FINANCIAL MEASURES
(Unaudited)
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| | | | | | Three Months Ended | | | Twelve Months Ended | |
| | | | | | December 31, | | | December 31, | |
| | | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
Revenue: | | | | | | | | | | | | | | | | | | | | |
GAAP revenue | | | | | | $ | 15,578,000 | | | $ | 14,327,000 | | | $ | 60,144,000 | | | $ | 54,713,000 | |
| | | | | | | | | | | | | | | | | | | | |
Cost of revenue | | | | | | | | | | | | | | | | | | | | |
GAAP cost of revenue | | | | | | $ | 2,709,000 | | | $ | 2,522,000 | | | $ | 10,533,000 | | | $ | 9,593,000 | |
Stock-based compensation charges (1) | | | (A | ) | | | (15,000 | ) | | | (45,000 | ) | | | (186,000 | ) | | | (181,000 | ) |
| | | | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted cost of revenue | | | | | | $ | 2,694,000 | | | $ | 2,477,000 | | | $ | 10,347,000 | | | $ | 9,412,000 | |
| | | | | | | | | | | | | | | | | | | | |
Gross profit: | | | | | | | | | | | | | | | | | | | | |
GAAP gross profit | | | | | | $ | 12,869,000 | | | $ | 11,805,000 | | | $ | 49,611,000 | | | $ | 45,120,000 | |
Stock-based compensation charges (1) | | | (A | ) | | | 15,000 | | | | 45,000 | | | | 186,000 | | | | 181,000 | |
| | | | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted gross profit | | | | | | $ | 12,884,000 | | | $ | 11,850,000 | | | $ | 49,797,000 | | | $ | 45,301,000 | |
| | | | | | | | | | | | | | | | | | | | |
Research and development expense | | | | | | | | | | | | | | | | | | | | |
GAAP research and development expense | | | | | | $ | 2,435,000 | | | $ | 2,074,000 | | | $ | 9,553,000 | | | $ | 8,317,000 | |
Stock-based compensation charges (1) | | | (A | ) | | | (31,000 | ) | | | (59,000 | ) | | | (246,000 | ) | | | (243,000 | ) |
| | | | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted research and development expense | | | | | | $ | 2,404,000 | | | $ | 2,015,000 | | | $ | 9,307,000 | | | $ | 8,074,000 | |
| | | | | | | | | | | | | | | | | | | | |
Selling and marketing expense | | | | | | | | | | | | | | | | | | | | |
GAAP selling and marketing expense | | | | | | $ | 4,818,000 | | | $ | 4,265,000 | | | $ | 19,015,000 | | | $ | 18,075,000 | |
Stock-based compensation charges (1) | | | (A | ) | | | (81,000 | ) | | | (192,000 | ) | | | (542,000 | ) | | | (579,000 | ) |
| | | | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted selling and marketing expense | | | | | | $ | 4,737,000 | | | $ | 4,073,000 | | | $ | 18,473,000 | | | $ | 17,496,000 | |
| | | | | | | | | | | | | | | | | | | | |
General and administrative expense | | | | | | | | | | | | | | | | | | | | |
GAAP general and administrative expense | | | | | | $ | 2,268,000 | | | $ | 4,241,000 | | | $ | 11,727,000 | | | $ | 10,812,000 | |
Stock-based compensation charges (1) | | | (A | ) | | | (122,000 | ) | | | (706,000 | ) | | | (809,000 | ) | | | (1,170,000 | ) |
Strategic consulting and litigation costs (2) | | | (B | ) | | | (229,000 | ) | | | (502,000 | ) | | | (2,865,000 | ) | | | (1,218,000 | ) |
Executive separation payment (3) | | | (C | ) | | | — | | | | (1,152,000 | ) | | | (358,000 | ) | | | (1,152,000 | ) |
| | | | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted general and administrative expense | | | | | | $ | 1,917,000 | | | $ | 1,881,000 | | | $ | 7,695,000 | | | $ | 7,272,000 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income: | | | | | | | | | | | | | | | | | | | | |
GAAP operating income | | | | | | $ | 3,348,000 | | | $ | 1,225,000 | | | $ | 9,316,000 | | | $ | 7,916,000 | |
Stock-based compensation charges (1) | | | (A | ) | | | 249,000 | | | | 1,002,000 | | | | 1,783,000 | | | | 2,173,000 | |
Strategic consulting and litigation costs (2) | | | (B | ) | | | 229,000 | | | | 502,000 | | | | 2,865,000 | | | | 1,218,000 | |
Executive separation payment (3) | | | (C | ) | | | — | | | | 1,152,000 | | | | 358,000 | | | | 1,152,000 | |
| | | | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted operating income | | | | | | $ | 3,826,000 | | | $ | 3,881,000 | | | $ | 14,322,000 | | | $ | 12,459,000 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | $ | — | |
Adjusted Operating Margin | | | | | | | 24.6 | % | | | 27.1 | % | | | 23.8 | % | | | 22.8 | % |
Net income: | | | | | | | | | | | | | | | | | | | | |
GAAP net income | | | | | | $ | 1,938,000 | | | $ | 798,000 | | | $ | 5,837,000 | | | $ | 5,016,000 | |
Stock-based compensation charges (1) | | | (A | ) | | | 249,000 | | | | 1,002,000 | | | | 1,783,000 | | | | 2,173,000 | |
Strategic consulting and litigation costs (2) | | | (B | ) | | | 229,000 | | | | 502,000 | | | | 2,865,000 | | | | 1,218,000 | |
Executive separation payment (3) | | | (C | ) | | | — | | | | 1,152,000 | | | | 358,000 | | | | 1,152,000 | |
Income tax impact | | | (D | ) | | | 1,328,000 | | | | 574,000 | | | | 3,187,000 | | | | 2,744,000 | |
| | | | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted net income | | | | | | $ | 3,744,000 | | | $ | 4,028,000 | | | $ | 14,030,000 | | | $ | 12,303,000 | |
| | | | | | | | | | | | | | | | | | | | |
Diluted net income per common share: | | | | | | | | | | | | | | | | | | | | |
GAAP net income | | | | | | $ | 0.04 | | | $ | 0.01 | | | $ | 0.11 | | | $ | 0.09 | |
Adjustments per share | | | (A-D) | | | $ | 0.03 | | | $ | 0.06 | | | $ | 0.15 | | | $ | 0.12 | |
| | | | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted net income | | | | | | $ | 0.07 | | | $ | 0.07 | | | $ | 0.26 | | | $ | 0.21 | |
| | | | | | | | | | | | | | | | | | | | |
Shares used to computeNon-GAAP adjusted net income per share - diluted | | | | | | | 53,490,290 | | | | 56,554,355 | | | | 54,395,145 | | | | 57,476,006 | |
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Reconciliation of Net income to EBITDA and Adjusted EBITDA: | | | (E | ) | | | | | | | | | | | | | | | | |
Net income | | | | | | $ | 1,938,000 | | | $ | 798,000 | | | $ | 5,837,000 | | | $ | 5,016,000 | |
Income tax provision | | | | | | | 1,440,000 | | | | 509,000 | | | | 3,692,000 | | | | 3,144,000 | |
Interest expense | | | | | | | 31,000 | | | | — | | | | 33,000 | | | | — | |
Depreciation expense | | | | | | | 643,000 | | | | 533,000 | | | | 2,303,000 | | | | 2,152,000 | |
| | | | | | | | | | | | | | | | | | | | |
EBITDA | | | | | | | 4,052,000 | | | | 1,840,000 | | | | 11,865,000 | | | | 10,312,000 | |
Adjustments: | | | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | | | (A | ) | | | 249,000 | | | | 1,002,000 | | | | 1,783,000 | | | | 2,173,000 | |
Strategic consulting and litigation costs (2) | | | (B | ) | | | 229,000 | | | | 502,000 | | | | 2,865,000 | | | | 1,218,000 | |
Executive separation payment (3) | | | (C | ) | | | — | | | | 1,152,000 | | | | 358,000 | | | | 1,152,000 | |
| | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | | | | | $ | 4,530,000 | | | $ | 4,496,000 | | | $ | 16,871,000 | | | $ | 14,855,000 | |
| | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA margin | | | | | | | 29.1 | % | | | 31.4 | % | | | 28.1 | % | | | 27.2 | % |
(1) Stock-based compensation charges are included as follows: | | | | | | | | | | | | | | | | | | | | |
Cost of revenues | | | | | | $ | 15,000 | | | $ | 45,000 | | | $ | 186,000 | | | $ | 181,000 | |
Research and development | | | | | | | 31,000 | | | | 59,000 | | | | 246,000 | | | | 243,000 | |
Selling and marketing | | | | | | | 81,000 | | | | 192,000 | | | | 542,000 | | | | 579,000 | |
General and administrative | | | | | | | 122,000 | | | | 706,000 | | | | 809,000 | | | | 1,170,000 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 249,000 | | | $ | 1,002,000 | | | $ | 1,783,000 | | | $ | 2,173,000 | |
| | | | | | | | | | | | | | | | | | | | |
(2) Strategic consulting and litigation costs are included as follows: | | | | | | | | | | | | | | | | | | | | |
General and administrative | | | | | | | 229,000 | | | | 502,000 | | | | 2,865,000 | | | | 1,218,000 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 229,000 | | | $ | 502,000 | | | $ | 2,865,000 | | | $ | 1,218,000 | |
| | | | | | | | | | | | | | | | | | | | |
(3) Executive separation payment is included as follows: | | | | | | | | | | | | | | | | | | | | |
General and administrative | | | | | | | — | | | | 1,152,000 | | | | 358,000 | | | | 1,152,000 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | — | | | $ | 1,152,000 | | | $ | 358,000 | | | $ | 1,152,000 | |
| | | | | | | | | | | | | | | | | | | | |
This presentation includesNon-GAAP measures. OurNon-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 Notes to Reconciliation of GAAP toNon-GAAP Financial Measures on the next page.
ZIX CORPORATION
RECONCILIATION OF GAAP TONON-GAAP FINANCIAL MEASURES OUTLOOK
| | | | | | | | | | | | | | | | |
| | | LOW
Three Months Ended
March 31 | | | HIGH
Three Months Ended
March 31 | | | LOW
Twelve Months Ended
December 31, | | | HIGH
Twelve Months Ended
December 31, | |
| | | 2017 | | | 2017 | | | 2017 | | | 2017 | |
Revenue: | | | | | | | | | | | | | | | | |
GAAP revenue | | $ | 15,600,000 | | | $ | 15,700,000 | | | $ | 64,500,000 | | | $ | 66,000,000 | |
| | | | | | | | | | | | | | | | |
Diluted net income per common share: | | | | | | | | | | | | | | | | |
GAAP net income | | $ | 0.02 | | | $ | 0.03 | | | $ | 0.10 | | | $ | 0.12 | |
Stock-based compensation charges | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.04 | | | $ | 0.04 | |
Strategic consulting and litigation costs | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.07 | | | $ | 0.05 | |
Executive separation payment | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Income tax impact | | $ | 0.02 | | | $ | 0.01 | | | $ | 0.07 | | | $ | 0.07 | |
| | | | | | | | | | | | | | | | |
Non-GAAP adjusted net income | | $ | 0.06 | | | $ | 0.06 | | | $ | 0.28 | | | $ | 0.28 | |
| | | | | | | | | | | | | | | | |
Shares used to computeNon-GAAP adjusted net income per share - diluted | | | 53,366,529 | | | | 53,366,529 | | | | 53,535,588 | | | | 53,535,588 | |
| | | | | | | | | | | | | | | | |
This presentation includesNon-GAAP measures. OurNon-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 Notes to Reconciliation of GAAP toNon-GAAP Financial Measures on the next page.
ZIX CORPORATION
NOTES TO RECONCILIATION OF GAAP TONON-GAAP FINANCIAL MEASURES
USE OFNON-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 theseNon-GAAP measures provide investors with a more informed baseline for modeling the Company’s future financial performance. Management uses theseNon-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. TheseNon-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 certainNon-GAAP financial measures, together with an explanation of why management uses these measures and why management believes that theseNon-GAAP financial measures are useful to investors. In addition, in our earnings release we have provided tables to reconcile theNon-GAAP financial measures utilized to GAAP financial measures.
ADJUSTEDNON-GAAP MEASURES
OurNon-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 fornon-cash stock-based compensation expense, and strategic consulting and litigation costs to deriveNon-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 adjustedNon-GAAP measures to GAAP Gross profit, Operating income, Net income, Net income per share—diluted and EBITDA.
Our forward-looking adjustedNon-GAAP earnings per share information consistently excludesnon-cash stock-based compensation expense. Additionally, the adjustedNon-GAAP earnings per share will consistently exclude litigation expenses and non-recurring items that impact our ongoing business. See items (A) through (D) below for further information on the current quarter’s reconciling items.
Items (A) through (E) on the “Reconciliation of GAAP toNon-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 (E).
(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 ofnon-cash stock-based compensation charges on our operating results.
(B) Strategic consulting and litigation costs. See item (2) on previous page. The Company’s management excludes certain board-directed consulting costs and litigation expenses when evaluating its ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results.
(C)Executive separation payment relating to CFO employment termination benefits agreement. See item (3) on previous page. The Company’s management excludes these costs when evaluating its ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results.
(D) TheNon-GAAP adjustment to the tax provision represents thenon-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.
(E) EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA adds back stock-based compensation charges and litigation expenses.
