Exhibit 99.1
Zix Reports Third Quarter and Nine Month 2017 Financial Results
ZixProtect and ZixArchive Performing Ahead of Plan, Contributing to a Strong Core Business and Contributing to Healthy New First Year Orders
DALLAS — October 24, 2017 —Zix Corporation (Zix) (NASDAQ: ZIXI), a leader in email security, today announced financial results for the third quarter ended September 30, 2017.
Third Quarter 2017 Financial Highlights (results compared to the sameyear-ago quarter)
| | • | | Revenue increased 8% to a record $16.6 million |
| | • | | Annual contract value increased 10% to a record $66.1 million |
| | • | | New first year orders increased 11% to $2.1 million |
| | • | | GAAP net income increased 8% to $1.9 million |
| | • | | GAAP fully diluted earnings per share increased 5% to $0.03 |
| | • | | Non-GAAP fully diluted earnings per share increased 5% to $0.07 |
| | • | | Adjusted EBITDA increased 7% to $4.6 million |
| | • | | Cash flow from operations increased to a company record $6.7 million |
| | • | | The company ended the quarter with $32.8 million in cash and no debt |
Management Commentary
“Following successful launches in the prior quarter, ZixProtect and ZixArchive continued to perform well ahead of our internal plan,” saidDave Wagner, Zix’s Chief Executive Officer. “Our early traction with these solutions has validated the timely rollout of our bundled product suite, when many customers are increasingly seeking more value from fewer vendors. During the quarter, several partner-based accounts fell behind their deployment schedules, and therefore their contributions could not be included in our third quarter revenue results. We also experienced weakness in our customer renewals which was largely driven by customer M&A activity. Our strategic decision to enter into the advanced threat protection and email archiving markets while also strengthening our hosted solution better positions us to mitigate these pressures and drive greater long-term value for our customers.”
Zix’s Chief Financial OfficerDave Rockvam added: “New first year orders during the third quarter increased 11.4% and experienced a solid boost due to the recent introductions of ZixProtect and ZixArchive. We also experienced solid year-over-year revenue growth and achieved record revenue for the 14th quarter in a row. Additionally, we achieved ournon-GAAP fully diluted earnings per share guidance of $0.07. Complementing these healthy results was our return to achieving a 28% adjusted
EBITDA margin, which we forecasted in the prior quarter and which is consistent with our long-term model. Looking ahead, we expect similar strong bottom-line results but expect a slight impact to our previously forecasted topline.”
Wagner continued: “We are driven by innovation and our commitment to our customers to provide the very best email security solution possible, which is why we acquired Entelligence Messaging Server (EMS) during the third quarter. The EMS technology will be integrated into our ZixEncrypt roadmap to enhance ourend-to-end encryption capabilities, as well as give us more delivery and deployment options and FIPS validated cryptography, which will give us an added edge when marketing to new customers and upselling existing ones. When combined with the portfolio expansion from our Greenview Data acquisition earlier in the year, we believe our enhanced product suite positions us as not only the gold standard in email encryption but in the broader email security market as well.”
Third Quarter 2017 Operational Highlights
| | • | | Acquired Entelligence Messaging Server business to strengthen Zix’s industry-leading email encryption solutions |
| | • | | Entered into astrategic partnership with Digital Guardian, a next-generation data protection platform, to bring togetherbest-in-class email encryption with enterprise data loss prevention |
Third Quarter 2017 Corporate Financial Summary and Other Operational Metrics
| | | | | | |
$ in Millions, except per share data | | Q3 2017 | | Q3 2016 | | Change (1) |
Revenue | | $16.6 | | $15.3 | | 8.4% |
GAAP Gross Profit | | $13.3 | | $12.7 | | 5.2% |
GAAP Net Income | | $1.9 | | $1.8 | | 7.7% |
GAAP Net Income Per Share – Diluted | | $0.03 | | $0.03 | | 5.0% |
EBITDA(2) | | $3.7 | | $3.2 | | 16.1% |
EBITDA Margin | | 22.3% | | 20.8% | | 1.5 pt |
Non-GAAP Adjusted Gross Profit(3) | | $13.4 | | $12.7 | | 5.8% |
Non-GAAP Adjusted Net Income(3) | | $3.9 | | $3.6 | | 8.0% |
Non-GAAP Adjusted Net Income Per Share – Diluted(3) | | $0.07 | | $0.07 | | 5.3% |
Adjusted EBITDA(3) | | $4.6 | | $4.3 | | 6.7% |
Adjusted EBITDA Margin | | 27.7% | | 28.1% | | (0.4 pts) |
New First Year Orders | | $2.1 | | $1.9 | | 11.4% |
Total Orders | | $14.3 | | $16.5 | | (13.6%) |
Backlog(4) | | $75.0 | | $81.6 | | (8.2%) |
Fiscal Nine Months 2017 Corporate Financial Summary and Other Operational Metrics
| | | | | | |
$ in Millions, except per share data | | YTD 2017 | | YTD 2016 | | Change (1) |
Revenue | | $48.9 | | $44.6 | | 9.6% |
GAAP Gross Profit | | $39.5 | | $36.7 | | 7.6% |
GAAP Net Income | | $4.8 | | $3.9 | | 23.6% |
GAAP Net Income Per Share – Diluted | | $0.09 | | $0.07 | | 24.6% |
EBITDA(2) | | $10.5 | | $7.8 | | 33.7% |
EBITDA Margin | | 21.4% | | 17.5% | | 3.9 pts |
Non-GAAP Adjusted Gross Profit(3) | | $39.9 | | $36.9 | | 8.0% |
Non-GAAP Adjusted Net Income(3) | | $11.1 | | $10.3 | | 7.9% |
Non-GAAP Adjusted Net Income Per Share – Diluted(3) | | $0.20 | | $0.19 | | 8.7% |
Adjusted EBITDA(3) | | $13.3 | | $12.3 | | 7.7% |
Adjusted EBITDA Margin | | 27.2% | | 27.7% | | (0.5 pts) |
New First Year Orders | | $6.8 | | $6.8 | | (0.0%) |
Total Orders | | $44.3 | | $52.7 | | (15.9%) |
| (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 |
Financial Outlook
For the fourth quarter 2017, the company forecasts revenue to range between $16.6 million and $16.8 million, representing an increase of 7% to 8% 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 $0.08 for the fourth quarter 2017.
For fiscal year 2017, the company is revising its revenue guidance range to between $65.5 million to $65.7 million, representing an increase of 9% compared to fiscal year 2016. The company forecasts fully diluted GAAP earnings per share to be between $0.10 and $0.12 and reiterates its fully dilutednon-GAAP adjusted earnings per share guidance of $0.28 for fiscal year 2017.
Conference Call Information
Management will discuss these financial results and outlook on a conference call today (October 24, 2017) at 5:00 p.m. ET (2:00 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 93297452. If you have any difficulty connecting with the conference call, please contact Liolios Group at1-949-574-3860.
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 93297452. An archive of the webcast will also be available on the Zix investor relations Web site.
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 andeasy-to-use solutions for email encryption and data loss prevention, advanced threat protection, 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, visitwww.zixcorp.com.
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| | |
Zix Company Contact Taylor Johnson (214)370-2134 tjohnson@zixcorp.com | | Zix Investor Contact Matt Glover and Najim Mostamand, CFA 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.
ZIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | |
| | | September 30,
2017
(unaudited) | | | December 31,
2016 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 32,760,000 | | | $ | 26,457,000 | |
Receivables, net | | | 1,235,000 | | | | 1,209,000 | |
Prepaid and other current assets | | | 3,039,000 | | | | 2,829,000 | |
| | | | | | | | |
Total current assets | | | 37,034,000 | | | | 30,495,000 | |
Property and equipment, net | | | 4,175,000 | | | | 3,976,000 | |
Intangible Assets, Net | | | 4,828,000 | | | | — | |
Goodwill | | | 8,420,000 | | | | 2,161,000 | |
Deferred tax assets | | | 40,901,000 | | | | 45,726,000 | |
| | | | | | | | |
Total assets | | $ | 95,358,000 | | | $ | 82,358,000 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 5,443,000 | | | $ | 4,720,000 | |
Deferred revenue | | | 28,543,000 | | | | 25,773,000 | |
| | | | | | | | |
Total current liabilities | | | 33,986,000 | | | | 30,493,000 | |
Long-term liabilities: | | | | | | | | |
Deferred revenue | | | 1,912,000 | | | | 1,448,000 | |
Deferred rent | | | 1,230,000 | | | | 1,347,000 | |
| | | | | | | | |
Total long-term liabilities | | | 3,142,000 | | | | 2,795,000 | |
| | | | | | | | |
Total liabilities | | | 37,128,000 | | | | 33,288,000 | |
Total stockholders’ equity | | | 58,230,000 | | | | 49,070,000 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 95,358,000 | | | $ | 82,358,000 | |
| | | | | | | | |
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Revenue | | $ | 16,592,000 | | | $ | 15,308,000 | | | $ | 48,863,000 | | | $ | 44,566,000 | |
| | | | |
Cost of revenue | | | 3,272,000 | | | | 2,652,000 | | | | 9,342,000 | | | | 7,824,000 | |
| | | | | | | | | | | | | | | | |
Gross profit | | | 13,320,000 | | | | 12,656,000 | | | | 39,521,000 | | | | 36,742,000 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Research and development | | | 2,916,000 | | | | 2,619,000 | | | | 8,047,000 | | | | 7,118,000 | |
Selling, general and administrative | | | 7,514,000 | | | | 7,484,000 | | | | 23,282,000 | | | | 23,656,000 | |
| | | | | | | | | | | | | | | | |
Total operating expenses | | | 10,430,000 | | | | 10,103,000 | | | | 31,329,000 | | | | 30,774,000 | |
| | | | | | | | | | | | | | | | |
Operating income | | | 2,890,000 | | | | 2,553,000 | | | | 8,192,000 | | | | 5,968,000 | |
Operating margin | | | 17 | % | | | 17 | % | | | 17 | % | | | 13 | % |
| | | | |
Other income, net | | | 86,000 | | | | 74,000 | | | | 230,000 | | | | 183,000 | |
| | | | |
Income before income taxes | | | 2,976,000 | | | | 2,627,000 | | | | 8,422,000 | | | | 6,151,000 | |
Income tax expense | | | (1,070,000 | ) | | | (858,000 | ) | | | (3,603,000 | ) | | | (2,252,000 | ) |
| | | | | | | | | | | | | | | | |
Net income | | $ | 1,906,000 | | | $ | 1,769,000 | | | $ | 4,819,000 | | | $ | 3,899,000 | |
| | | | | | | | | | | | | | | | |
Basic income per common share: | | $ | 0.04 | | | $ | 0.03 | | | $ | 0.09 | | | $ | 0.07 | |
| | | | | | | | | | | | | | | | |
Diluted income per common share: | | $ | 0.03 | | | $ | 0.03 | | | $ | 0.09 | | | $ | 0.07 | |
| | | | | | | | | | | | | | | | |
Shares used in per share calculation - basic | | | 53,786,876 | | | | 52,714,544 | | | | 53,443,749 | | | | 54,157,050 | |
| | | | | | | | | | | | | | | | |
Shares used in per share calculation - diluted | | | 54,631,407 | | | | 53,262,075 | | | | 54,263,258 | | | | 54,699,207 | |
| | | | | | | | | | | | | | | | |
ZIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | |
| | | Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | |
Operating activities: | | | | | | | | |
Net income | | $ | 4,819,000 | | | $ | 3,899,000 | |
Non-cash items in net income | | | 7,262,000 | | | | 5,053,000 | |
Changes in operating assets and liabilities | | | 1,903,000 | | | | 4,272,000 | |
| | | | | | | | |
Net cash provided by operating activities | | | 13,984,000 | | | | 13,224,000 | |
| | |
Investing activities: | | | | | | | | |
Purchases of property and equipment | | | (1,754,000 | ) | | | (1,772,000 | ) |
Acquisition of business, net of cash acquired | | | (8,245,000 | ) | | | — | |
| | | | | | | | |
Net cash used in investing activities | | | (9,999,000 | ) | | | (1,772,000 | ) |
| | |
Financing activities: | | | | | | | | |
Proceeds from exercise of stock options | | | 4,198,000 | | | | 155,000 | |
Purchase of Treasury Stock | | | (1,880,000 | ) | | | (15,499,000 | ) |
| | | | | | | | |
Net cash provided by (used in) financing activities | | | 2,318,000 | | | | (15,344,000 | ) |
| | | | | | | | |
Increase (Decrease) in cash and cash equivalents | | | 6,303,000 | | | | (3,892,000 | ) |
Cash and cash equivalents, beginning of period | | | 26,457,000 | | | | 28,664,000 | |
| | | | | | | | |
Cash and cash equivalents, end of period | | $ | 32,760,000 | | | $ | 24,772,000 | |
| | | | | | | | |
ZIX CORPORATION
RECONCILIATION OF GAAP TONON-GAAP FINANCIAL MEASURES
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
Revenue: | | | | | | | | | | | | | | | | | | |
GAAP revenue | | | | $ | 16,592,000 | | | $ | 15,308,000 | | | $ | 48,863,000 | | | $ | 44,566,000 | |
| | | | | | | | | | | | | | | | | | |
Cost of revenue | | | | | | | | | | | | | | | | | | |
GAAP cost of revenue | | | | $ | 3,272,000 | | | $ | 2,652,000 | | | $ | 9,342,000 | | | $ | 7,824,000 | |
Stock-based compensation charges (1) | | (A) | | | (78,000 | ) | | | (55,000 | ) | | | (226,000 | ) | | | (171,000 | ) |
Strategic consulting and litigation costs (2) | | (B) | | | (1,000 | ) | | | — | | | | (3,000 | ) | | | — | |
Intangible Amortization (3) | | (C) | | | (50,000 | ) | | | — | | | | (100,000 | ) | | | — | |
| | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted cost of revenue | | | | $ | 3,143,000 | | | $ | 2,597,000 | | | $ | 9,013,000 | | | $ | 7,653,000 | |
| | | | | | | | | | | | | | | | | | |
Gross profit: | | | | | | | | | | | | | | | | | | |
GAAP gross profit | | | | $ | 13,320,000 | | | $ | 12,656,000 | | | $ | 39,521,000 | | | $ | 36,742,000 | |
Stock-based compensation charges (1) | | (A) | | | 78,000 | | | | 55,000 | | | | 226,000 | | | | 171,000 | |
Strategic consulting and litigation costs (2) | | (B) | | | 1,000 | | | | — | | | | 3,000 | | | | — | |
Intangible Amortization (3) | | (C) | | | 50,000 | | | | — | | | | 100,000 | | | | — | |
| | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted gross profit | | | | $ | 13,449,000 | | | $ | 12,711,000 | | | $ | 39,850,000 | | | $ | 36,913,000 | |
| | | | | | | | | | | | | | | | | | |
Research and development expense | | | | | | | | | | | | | | | | | | |
GAAP research and development expense | | | | $ | 2,916,000 | | | $ | 2,619,000 | | | $ | 8,047,000 | | | $ | 7,118,000 | |
Stock-based compensation charges (1) | | (A) | | | (98,000 | ) | | | (63,000 | ) | | | (276,000 | ) | | | (215,000 | ) |
Strategic consulting and litigation costs (2) | | (B) | | | (52,000 | ) | | | — | | | | (55,000 | ) | | | — | |
| | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted research and development expense | | | | $ | 2,766,000 | | | $ | 2,556,000 | | | $ | 7,716,000 | | | $ | 6,903,000 | |
| | | | | | | | | | | | | | | | | | |
Selling and marketing expense | | | | | | | | | | | | | | | | | | |
GAAP selling and marketing expense | | | | $ | 4,852,000 | | | $ | 4,705,000 | | | $ | 15,247,000 | | | $ | 14,197,000 | |
Stock-based compensation charges (1) | | (A) | | | (234,000 | ) | | | (156,000 | ) | | | (670,000 | ) | | | (460,000 | ) |
Strategic consulting and litigation costs (2) | | (B) | | | (1,000 | ) | | | — | | | | (2,000 | ) | | | — | |
Intangible Amortization (3) | | (C) | | | (57,000 | ) | | | — | | | | (113,000 | ) | | | — | |
| | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted selling and marketing expense | | | | $ | 4,560,000 | | | $ | 4,549,000 | | | $ | 14,462,000 | | | $ | 13,737,000 | |
| | | | | | | | | | | | | | | | | | |
General and administrative expense | | | | | | | | | | | | | | | | | | |
GAAP general and administrative expense | | | | $ | 2,662,000 | | | $ | 2,779,000 | | | $ | 8,035,000 | | | $ | 9,459,000 | |
Stock-based compensation charges (1) | | (A) | | | (334,000 | ) | | | (177,000 | ) | | | (851,000 | ) | | | (687,000 | ) |
Strategic consulting and litigation costs (2) | | (B) | | | (90,000 | ) | | | (664,000 | ) | | | (760,000 | ) | | | (2,636,000 | ) |
Corporate separation payment (4) | | (D) | | | — | | | | — | | | | (3,000 | ) | | | (358,000 | ) |
| | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted general and administrative expense | | | | $ | 2,238,000 | | | $ | 1,938,000 | | | $ | 6,421,000 | | | $ | 5,778,000 | |
| | | | | | | | | | | | | | | | | | |
Operating income: | | | | | | | | | | | | | | | | | | |
GAAP operating income | | | | $ | 2,890,000 | | | $ | 2,553,000 | | | $ | 8,192,000 | | | $ | 5,968,000 | |
Stock-based compensation charges (1) | | (A) | | | 744,000 | | | | 451,000 | | | | 2,023,000 | | | | 1,533,000 | |
Strategic consulting and litigation costs (2) | | (B) | | | 144,000 | | | | 664,000 | | | | 820,000 | | | | 2,636,000 | |
Intangible Amortization (3) | | (C) | | | 107,000 | | | | — | | | | 213,000 | | | | — | |
Corporate separation payment (4) | | (D) | | | — | | | | — | | | | 3,000 | | | | 358,000 | |
| | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted operating income | | | | $ | 3,885,000 | | | $ | 3,668,000 | | | $ | 11,251,000 | | | $ | 10,495,000 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Adjusted Operating Margin | | | | | 23.4 | % | | | 24.0 | % | | | 23.0 | % | | | 23.5 | % |
| | | | | |
Net income: | | | | | | | | | | | | | | | | | | |
GAAP net income | | | | $ | 1,906,000 | | | $ | 1,769,000 | | | $ | 4,819,000 | | | $ | 3,899,000 | |
Stock-based compensation charges (1) | | (A) | | | 744,000 | | | | 451,000 | | | | 2,023,000 | | | | 1,533,000 | |
Strategic consulting and litigation costs (2) | | (B) | | | 144,000 | | | | 664,000 | | | | 820,000 | | | | 2,636,000 | |
Intangible Amortization (3) | | (C) | | | 107,000 | | | | — | | | | 213,000 | | | | — | |
Corporate separation payment (4) | | (D) | | | — | | | | — | | | | 3,000 | | | | 358,000 | |
Income tax impact | | (E) | | | 983,000 | | | | 713,000 | | | | 3,215,000 | | | | 1,859,000 | |
| | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted net income | | | | $ | 3,884,000 | | | $ | 3,597,000 | | | $ | 11,093,000 | | | $ | 10,285,000 | |
| | | | | | | | | | | | | | | | | | |
Diluted net income per common share: | | | | | | | | | | | | | | | | | | |
GAAP net income per share | | | | $ | 0.03 | | | $ | 0.03 | | | $ | 0.09 | | | $ | 0.07 | |
Adjustments per share | | (A-E) | | $ | 0.04 | | | $ | 0.04 | | | $ | 0.11 | | | $ | 0.12 | |
| | | | | | | | | | | | | | | | | | |
Non-GAAP adjusted net income per share | | | | $ | 0.07 | | | $ | 0.07 | | | $ | 0.20 | | | $ | 0.19 | |
| | | | | | | | | | | | | | | | | | |
Shares used to computeNon-GAAP adjusted net income per share - diluted | | | | | 54,631,407 | | | | 53,262,075 | | | | 54,263,258 | | | | 54,699,207 | |
| | | | | | | | | | | | | | | | | | |
Reconciliation of Net income to EBITDA and Adjusted EBITDA: | | (F) | | | | | | | | | | | | | | | | |
Net income | | | | $ | 1,906,000 | | | $ | 1,769,000 | | | $ | 4,819,000 | | | $ | 3,899,000 | |
Income tax provision | | | | | 1,070,000 | | | | 858,000 | | | | 3,603,000 | | | | 2,252,000 | |
Depreciation | | | | | 621,000 | | | | 562,000 | | | | 1,811,000 | | | | 1,660,000 | |
Intangible Amortization (3) | | | | | 107,000 | | | | — | | | | 213,000 | | | | — | |
| | | | | | | | | | | | | | | | | | |
EBITDA | | | | | 3,704,000 | | | | 3,189,000 | | | | 10,446,000 | | | | 7,811,000 | |
| | | | | |
Adjustments: | | | | | | | | | | | | | | | | | | |
Stock-based compensation charges (1) | | (A) | | | 744,000 | | | | 451,000 | | | | 2,023,000 | | | | 1,533,000 | |
Strategic consulting and litigation costs (2) | | (B) | | | 144,000 | | | | 664,000 | | | | 820,000 | | | | 2,636,000 | |
Corporate separation payment (4) | | (D) | | | — | | | | — | | | | 3,000 | | | | 358,000 | |
| | | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | | | $ | 4,592,000 | | | $ | 4,304,000 | | | $ | 13,292,000 | | | $ | 12,338,000 | |
| | | | | | | | | | | | | | | | | | |
Adjusted EBITDA margin | | | | | 27.7 | % | | | 28.1 | % | | | 27.2 | % | | | 27.7 | % |
ZIX CORPORATION
RECONCILIATION OF GAAP TONON-GAAP FINANCIAL MEASURES
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended
September 30, | | | Nine Months Ended
September 30, | |
| | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
(1) Stock-based compensation charges are included as follows: | | | | | | | | | | | | | | | | | | | | |
Cost of revenues | | | | | | $ | 78,000 | | | $ | 55,000 | | | $ | 226,000 | | | $ | 171,000 | |
Research and development | | | | | | | 98,000 | | | | 63,000 | | | | 276,000 | | | | 215,000 | |
Selling and marketing | | | | | | | 234,000 | | | | 156,000 | | | | 670,000 | | | | 460,000 | |
General and administrative | | | | | | | 334,000 | | | | 177,000 | | | | 851,000 | | | | 687,000 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 744,000 | | | $ | 451,000 | | | $ | 2,023,000 | | | $ | 1,533,000 | |
| | | | | | | | | | | | | | | | | | | | |
(2) Strategic consulting and litigation costs are included as follows: | | | | | | | | | | | | | | | | | | | | |
Cost of revenues | | | | | | | 1,000 | | | | — | | | | 3,000 | | | | — | |
Research and development | | | | | | | 52,000 | | | | — | | | | 55,000 | | | | — | |
Selling and marketing | | | | | | | 1,000 | | | | — | | | | 2,000 | | | | — | |
General and administrative | | | | | | | 90,000 | | | | 664,000 | | | | 760,000 | | | | 2,636,000 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 144,000 | | | $ | 664,000 | | | $ | 820,000 | | | $ | 2,636,000 | |
| | | | | | | | | | | | | | | | | | | | |
(3) Intangible Amortization is included as follows: | | | | | | | | | | | | | | | | | | | | |
Cost of revenues | | | | | | | 50,000 | | | | — | | | | 100,000 | | | | — | |
Selling and marketing | | | | | | | 57,000 | | | | — | | | | 113,000 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 107,000 | | | $ | — | | | $ | 213,000 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
(4) Corporate separation payment is included as follows: | | | | | | | | | | | | | | | | | | | | |
General and administrative | | | | | | | — | | | | — | | | | 3,000 | | | | 358,000 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | — | | | $ | — | | | $ | 3,000 | | | $ | 358,000 | |
| | | | | | | | | | | | | | | | | | | | |
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 | | | HIGH | | | LOW | | | HIGH | |
| | | Three Months Ended
December 31
2017 | | | Three Months Ended
December 31
2017 | | | Twelve Months Ended
December 31,
2017 | | | Twelve Months Ended
December 31,
2017 | |
Revenue: | | | | | | | | | | | | | | | | |
GAAP revenue | | $ | 16,600,000 | | | $ | 16,800,000 | | | $ | 65,500,000 | | | $ | 65,700,000 | |
| | | | | | | | | | | | | | | | |
Diluted net income per common share: | | | | | | | | | | | | | | | | |
GAAP net income | | $ | 0.02 | | | $ | 0.03 | | | $ | 0.10 | | | $ | 0.11 | |
Stock-based compensation charges | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.05 | | | $ | 0.05 | |
Strategic consulting and litigation costs | | $ | — | | | $ | — | | | $ | 0.02 | | | $ | 0.02 | |
Intangible Amortization | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.01 | | | $ | 0.01 | |
Corporate separation payment | | $ | 0.02 | | | $ | 0.02 | | | $ | 0.02 | | | $ | 0.02 | |
Income tax impact | | $ | 0.03 | | | $ | 0.02 | | | $ | 0.08 | | | $ | 0.07 | |
| | | | | | | | | | | | | | | | |
Non-GAAP adjusted net income | | $ | 0.08 | | | $ | 0.08 | | | $ | 0.28 | | | $ | 0.28 | |
| | | | | | | | | | | | | | | | |
Shares used to computeNon-GAAP adjusted net income per share - diluted | | | 54,450,000 | | | | 54,450,000 | | | | 54,399,631 | | | | 54,399,631 | |
| | | | | | | | | | | | | | | | |
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 (E) below for further information on the current quarter’s reconciling items.
Items (A) through (F) 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 (F).
(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) Intangible amortization costs. See item (3) on previous page. The Company’s management excludes amortization expenses associated with the acquisition of intangible assets when evaluating its ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results.
(D)Corporate separation payment relating to employment termination benefits agreement. See item (4) 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.
(E) 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.
(F) EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA adds back stock-based compensation charges and litigation expenses.
