DALLAS--(BUSINESS WIRE)--
(Zix) (NASDAQ: ZIXI), a leading provider of cloud email security, productivity and compliance solutions, today announced financial results for the third quarter ended September 30, 2020.
Third Quarter 2020 Financial Highlights (results compared to the same year-ago quarter)
- Revenue increased 15% to $54.8 million.
- Annual recurring revenue (ARR) increased 11% to $222.3 million. Cloud ARR increased 19% to $190.3 million or 86% of total ARR.
- GAAP net loss totaled ($0.7) million compared to a year ago net loss of ($1.6) million.
- GAAP net loss attributable to common stockholders totaled ($3.0) million compared to a year ago net loss attributable to common stockholders of ($3.7) million. The company’s Q3 2020 net loss attributable to common shareholders includes the effect of a deemed dividend to preferred shareholders of $2.3 million and acquisition-related expenses of $1.1 million.
- GAAP fully diluted earnings (loss) per share attributable to common stockholders totaled ($0.05) compared to ($0.07).
- Non-GAAP adjusted net income before deemed dividends and acquisition related expenses and excluding deferred tax (benefit) expense totaled $9.2 million compared to $6.7 million.
- Non-GAAP adjusted net income per share before deemed dividends and excluding deferred tax (benefit) expense increased 34% to $0.17.
- Adjusted EBITDA increased 20% or $2.3 million to $13.8 million, representing an adjusted EBITDA margin of 25%.
- The company ended the quarter with $23.7 million in cash, an increase of 68% or $9.6 million from $14.1 million at the end of the prior sequential quarter. Cash flow from operations was $15.1 million, an increase of 78% or $8.5 million compared to the same year-ago quarter.
Recent Operational Highlights
- 95% of all new customers in Q3 2020 were brought onto the new Zix Secure Cloud platform.
- Zix added 50,276 cloud mailboxes in Q3 2020, bringing the total number of productivity mailboxes to over 1.1 million.
- AppRiver direct customers and Managed Service Provider partners (MSPs) started 3,038 trials of SecureTide, ZixEncrypt and ZixArchive in Q3 2020.
- Appointed former McAfee technology veteran Ryan Allphin to the new position of Chief Product Officer (CPO) in November, further strengthening the leadership team to drive growth.
Management Commentary
“Our solid third quarter results demonstrate both our team’s continued commitment to driving profitable growth as well as our partners’ and customers’ adoption of our Secure Cloud platform,” said , Zix’s Chief Executive Officer. “With 15% revenue growth and 25% adjusted EBITDA margins in the quarter, we are seeing clear feedback for the growing value Zix is providing our partners with our Secure Cloud platform by delivering comprehensive digital productivity, security and compliance solutions for businesses globally. Additionally, through our recently announced acquisition of CloudAlly, we’re now able to offer cloud-based data backup, enabling us to further expand our product suite and also address a clear demand from our partners for an integrated cloud backup offering. Cloud data back-up is a critical component of a secure modern workplace, and we believe it will further improve our standing with current and potential partners as we enable them to navigate and thrive in an increasingly work-from-anywhere world. Our continued, efficient rate of new customer acquisition and the rapid adoption of our Secure Cloud platform both underscore our early success on this long-term secular market trend.”
Zix’s Chief Financial Officer commented: “In the third quarter we delivered on our commitment to drive revenue growth as well as adjusted gross margin and adjusted EBITDA increases on an absolute basis, the latter two of which were up $0.3 million and $1.1 million from Q2 2020, respectively. We also produced strong cash flow from operations, generating $15.1 million in the third quarter and $24.2 million on a year-to-date basis. During the quarter we also added $9.6 million of cash and ended the quarter with $23.7 million. Our strengthening balance sheet, coupled with our unlevered free cash flow generation capabilities, will reliably allow us to service our debt obligations and execute our growth strategy.”
Third Quarter 2020 Corporate Financial Summary and Other Operational Metrics |
|||
$ in Millions, except per share data |
Q3 2020 |
Q3 2019 |
Change (1) |
Revenue |
$54.8 |
$47.8 |
14.6% |
GAAP Net Income (Loss) |
($0.7) |
($1.6) |
54.6% |
GAAP Net Income (Loss) Per Share Attributable to Common Stockholders – Diluted |
($0.05) |
($0.07) |
21.6% |
Non-GAAP Adjusted Net Income Attributable to Common Stockholders (3) |
$6.9 |
$4.6 |
52.1% |
Non-GAAP Adjusted Net Income Per Share Attributable to Common Stockholders – Diluted (3) |
$0.13 |
$0.09 |
43.6% |
Non-GAAP Adjusted Net Income Before Deemed Dividends(3) |
$8.1 |
$6.8 |
19.7% |
Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends and Acquisition-Related Expenses - Diluted(3) |
$0.15 |
$0.13 |
15.6% |
Non-GAAP Adjusted Net Income Before Deemed Dividends and Acquisition-Related Expenses but Excluding Deferred Tax (Benefit) Expense(3) |
$9.2 |
$6.7 |
38.4% |
Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense(3) |
$0.17 |
$0.13 |
33.7% |
EBITDA (2)(3) |
$10.6 |
$7.9 |
33.8% |
EBITDA Margin |
19.3% |
16.6% |
2.8 pts |
Adjusted EBITDA (3) |
$13.8 |
$11.5 |
19.9% |
Adjusted EBITDA Margin (3) |
25.1% |
24.0% |
1.1 pts |
Total Billings |
$54.6 |
$46.2 |
18.3% |
(1) Changes are based on actual numbers versus numbers shown in the columns, which may reflect rounding
(2) Earnings before interest, taxes, depreciation and amortization
(3) A reconciliation of GAAP to non-GAAP results is included in this press release and available on the Zix investor relations website at
Financial Outlook
Zix provides guidance based on current market conditions and expectations. The company emphasizes that the guidance is subject to various important cautionary factors referenced in the section entitled "Forward-Looking Statements" below, including risks and uncertainties associated with the COVID-19 pandemic.
For the fourth quarter of 2020, the company forecasts revenue to range between $56.4 million and $57.4 million, which includes approximately $1.0 million of contribution from the company’s acquisition of CloudAlly on November 5, 2020 and takes into account the GAAP-required deferred revenue discount. Zix’s revenue forecast for the fourth quarter of 2020 implies a 12% to 14% growth rate compared to the same year-ago quarter. The company forecasts fully diluted GAAP earnings (loss) per share (attributable to common stockholders) to be in the range of ($0.09) and ($0.08), and fully diluted non-GAAP adjusted earnings per share (attributable to common stockholders) before deemed dividends and excluding deferred tax (benefit) expense to be in the range of $0.16 and $0.17 for the fourth quarter of 2020. The company forecasts adjusted EBITDA to be approximately 25% of forecast revenue for Q4 2020. The per share guidance figures are based on an approximate basic share count of 55.5 million for Q4 2020.
Based on management’s current visibility, the company has updated its revenue range for the full fiscal year of 2020 to reflect the currently anticipated impact of the COVID-19 pandemic and related factors on its operations. The company now forecasts revenue to range between $217 million and $218 million, representing an increase of between 25% and 26% compared to fiscal year 2019. The company also expects fully diluted GAAP earnings (loss) per share (attributable to common stockholders) to range between ($0.28) and ($0.27) and fully diluted non-GAAP adjusted earnings per share (attributable to common stockholders) before deemed dividends and excluding deferred tax (benefit) expense to range between $0.60 to $0.61 for fiscal year 2020. The company forecasts adjusted EBITDA to be in the range of $51.2 million and $51.8 million (or approximately 24% of forecast revenue) for 2020, representing a year-over-year increase of between 30% and 31% compared to fiscal year 2019. The per share figures are based on an approximate basic average share count of 54.0 million for 2020.
Conference Call Information
Management will discuss these financial results and outlook on a conference call today (November 9, 2020) 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 . 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 9573805. 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 9573805. 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 .
Forward-Looking Statements
As more fully described in Zix's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, which is expected to be filed with the SEC by November 9, 2020, the company has been actively monitoring the COVID-19 situation and its impact on both the company and the world in which we operate. The impact of COVID-19 and unprecedented measures to prevent its spread are affecting our business in various ways such as causing volatility in demand for our products, changes in customer behavior, including their spending and payment patterns, disruptions in the operations of our third party suppliers and business partners, and limitations on our employees’ ability to work and travel. We expect the ultimate significance of the impact on our financial and operational results will be dictated by the length of time that these circumstances continue, which will depend on the currently unknowable extent and duration of the COVID-19 pandemic and governmental and public actions taken in response. These factors also make it more challenging for management to estimate the future performance of our business, particularly over the near term.
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 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, how privacy and data security laws may affect demand for Zix data protection solutions, and business disruptions, uncertainty and market instability stemming from the COVID-19 pandemic and governmental actions related thereto. 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.
We monitor ARR as an operating metric, which we define as the aggregate annualized contract value attributable to recurring revenue contracts as of the end of the applicable reporting period. We calculate ARR by determining the annual or monthly revenue of subscription agreements that are active as of the end of the applicable period and multiplying by 1 or 12. We monitor this metric to aid in determining to what extent individual customer relationships, considered in the aggregate, are growing or declining in financial magnitude. ARR is an operating metric derived as of the date of determination, and should be viewed independently of revenue, unearned revenue and any other GAAP financial measure over any period.
ZIX CORPORATION |
|||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||
September 30, |
|||||
|
2020 |
December 31, |
|||
|
(unaudited) |
2019 |
|||
ASSETS |
|||||
Current assets: |
|||||
Cash and cash equivalents |
$ |
23,662,000 |
$ |
13,349,000 |
|
Receivables, net |
|
15,328,000 |
|
10,081,000 |
|
Prepaid and other current assets |
|
3,966,000 |
|
4,984,000 |
|
Total current assets |
|
42,956,000 |
|
28,414,000 |
|
Property and equipment, net |
|
7,852,000 |
|
8,591,000 |
|
Operating lease assets |
|
8,332,000 |
|
10,128,000 |
|
Other assets and deferred costs |
|
12,461,000 |
|
11,968,000 |
|
Intangible Assets, Net |
|
137,367,000 |
|
145,876,000 |
|
Goodwill |
|
170,930,000 |
|
171,209,000 |
|
Deferred tax assets |
|
36,689,000 |
|
36,535,000 |
|
Total assets |
$ |
416,587,000 |
$ |
412,721,000 |
|
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY |
|||||
Current liabilities: |
|||||
Accounts payable and accrued expenses |
$ |
29,190,000 |
$ |
28,132,000 |
|
Deferred revenue |
|
41,095,000 |
|
40,757,000 |
|
Other current liabilities |
|
4,825,000 |
|
6,135,000 |
|
Total current liabilities |
|
75,110,000 |
|
75,024,000 |
|
Long-term liabilities: |
|||||
Deferred revenue |
|
1,263,000 |
|
2,524,000 |
|
Operating and finance lease liabilities |
|
7,301,000 |
|
9,105,000 |
|
Debt |
|
183,830,000 |
|
178,250,000 |
|
Total long-term liabilities |
|
192,394,000 |
|
189,879,000 |
|
Total liabilities |
|
267,504,000 |
|
264,903,000 |
|
Total preferred stock |
|
113,241,000 |
|
106,527,000 |
|
Total stockholders’ equity |
|
35,842,000 |
|
41,291,000 |
|
Total liabilities, preferred stock and stockholders’ equity |
$ |
416,587,000 |
$ |
412,721,000 |
|
ZIX CORPORATION |
|||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
|||||||||||||||
(Unaudited) |
|||||||||||||||
` |
|||||||||||||||
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||
Revenue |
$ |
54,840,000 |
|
$ |
47,833,000 |
|
$ |
160,611,000 |
|
$ |
123,049,000 |
|
|||
Cost of revenue |
|
27,928,000 |
|
|
21,422,000 |
|
|
82,265,000 |
|
|
52,865,000 |
|
|||
Gross profit |
|
26,912,000 |
|
|
26,411,000 |
|
|
78,346,000 |
|
|
70,184,000 |
|
|||
Operating expenses: |
|||||||||||||||
Research and development |
|
5,720,000 |
|
|
5,590,000 |
|
|
16,926,000 |
|
|
15,048,000 |
|
|||
Selling, general and administrative |
|
18,813,000 |
|
|
19,592,000 |
|
|
58,058,000 |
|
|
61,729,000 |
|
|||
Total operating expenses |
|
24,533,000 |
|
|
25,182,000 |
|
|
74,984,000 |
|
|
76,777,000 |
|
|||
Operating income |
|
2,379,000 |
|
|
1,229,000 |
|
|
3,362,000 |
|
|
(6,593,000 |
) |
|||
Operating margin |
|
4 |
% |
|
3 |
% |
|
2 |
% |
|
-5 |
% |
|||
Other income (expense) |
|||||||||||||||
Investment and other income (expense) |
|
127,000 |
|
|
14,000 |
|
|
104,000 |
|
|
115,000 |
|
|||
Interest expense and other expense |
|
(2,035,000 |
) |
|
(2,973,000 |
) |
|
(7,190,000 |
) |
|
(7,398,000 |
) |
|||
Total other income (expense) |
|
(1,908,000 |
) |
|
(2,959,000 |
) |
|
(7,086,000 |
) |
|
(7,283,000 |
) |
|||
Income before income taxes |
|
471,000 |
|
|
(1,730,000 |
) |
|
(3,724,000 |
) |
|
(13,876,000 |
) |
|||
Income tax benefit (expense) |
|
(1,196,000 |
) |
|
133,000 |
|
|
244,000 |
|
|
2,308,000 |
|
|||
Net (loss) income |
$ |
(725,000 |
) |
$ |
(1,597,000 |
) |
$ |
(3,480,000 |
) |
$ |
(11,568,000 |
) |
|||
Deemed and accrued dividends on preferred stock |
|
(2,267,000 |
) |
|
(2,090,000 |
) |
|
(6,714,000 |
) |
|
(7,894,000 |
) |
|||
Net (loss) income attributable to common shareholders |
$ |
(2,992,000 |
) |
$ |
(3,687,000 |
) |
$ |
(10,194,000 |
) |
$ |
(19,462,000 |
) |
|||
Basic (loss) income per share attributable to common shareholders: |
$ |
(0.05 |
) |
$ |
(0.07 |
) |
$ |
(0.19 |
) |
$ |
(0.37 |
) |
|||
Diluted (loss) income per share attributable to common shareholders: |
$ |
(0.05 |
) |
$ |
(0.07 |
) |
$ |
(0.19 |
) |
$ |
(0.37 |
) |
|||
Shares used in per share calculation - basic |
|
54,999,114 |
|
|
53,148,078 |
|
|
53,933,721 |
|
|
52,965,163 |
|
|||
Shares used in per share calculation - diluted |
|
54,999,114 |
|
|
53,148,078 |
|
|
53,933,721 |
|
|
52,965,163 |
|
|||
Other Comprehensive income, net of tax: |
|||||||||||||||
Foreign currency translation adjustments |
|
493,000 |
|
|
35,000 |
|
|
(118,000 |
) |
|
(52,000 |
) |
|||
Comprehensive (loss) income |
$ |
(232,000 |
) |
$ |
(1,562,000 |
) |
$ |
(3,598,000 |
) |
$ |
(11,620,000 |
) |
|||
ZIX CORPORATION |
|||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|||||||
(Unaudited) |
|||||||
Nine Months Ended September 30, |
|||||||
|
2020 |
|
2019 |
||||
Operating activities: |
|||||||
Net (loss) income |
$ |
(3,480,000 |
) |
$ |
(11,568,000 |
) |
|
Non-cash items in net income |
|
33,958,000 |
|
|
19,170,000 |
|
|
Changes in operating assets and liabilities |
|
(6,233,000 |
) |
|
349,000 |
|
|
Net cash provided by operating activities |
|
24,245,000 |
|
|
7,951,000 |
|
|
Investing activities: |
|||||||
Purchases of property and equipment and capitalized software |
|
(13,992,000 |
) |
|
(7,860,000 |
) |
|
Acquisition of business, net of cash acquired |
|
- |
|
|
(284,590,000 |
) |
|
Net cash used in investing activities |
|
(13,992,000 |
) |
|
(292,450,000 |
) |
|
Financing activities: |
|||||||
Proceeds from issuance of series A preferred stock, net of offering costs |
|
- |
|
|
96,588,000 |
|
|
Proceeds from exercise of stock options |
|
334,000 |
|
|
251,000 |
|
|
Proceeds from long term debt |
|
6,000,000 |
|
|
185,000,000 |
|
|
Debt issuance costs |
|
- |
|
|
(6,443,000 |
) |
|
Repayment of long term debt |
|
(1,388,000 |
) |
|
(900,000 |
) |
|
Repayment of finance lease obligations |
|
(1,086,000 |
) |
|
(1,277,000 |
) |
|
Payment of acquisition-related contingent consideration |
|
(1,125,000 |
) |
|
(3,843,000 |
) |
|
Purchase of treasury stock |
|
(2,717,000 |
) |
|
(1,881,000 |
) |
|
Net cash provided used in financing activities |
|
18,000 |
|
|
267,495,000 |
|
|
Effect of exchange rate changes on cash |
|
42,000 |
|
|
(39,000 |
) |
|
(Decrease) Increase in cash and cash equivalents |
|
10,313,000 |
|
|
(17,043,000 |
) |
|
Cash and cash equivalents, beginning of period |
|
13,349,000 |
|
|
27,109,000 |
|
|
Cash and cash equivalents, end of period |
$ |
23,662,000 |
|
$ |
10,066,000 |
|
|
ZIX CORPORATION |
|||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES |
|||||||||||||||||||
(Unaudited) |
|||||||||||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||||||||||
September 30, |
September 30, |
||||||||||||||||||
2020 |
2019 |
2020 |
2019 |
||||||||||||||||
Revenue: |
|||||||||||||||||||
GAAP revenue |
$ |
54,840,000 |
|
$ |
47,833,000 |
|
$ |
160,611,000 |
|
$ |
123,049,000 |
|
|||||||
Cost of revenue |
|||||||||||||||||||
GAAP cost of revenue |
$ |
27,928,000 |
|
$ |
21,422,000 |
|
$ |
82,265,000 |
|
$ |
52,865,000 |
|
|||||||
Stock-based compensation charges (1) |
(A) |
|
(97,000 |
) |
|
(154,000 |
) |
|
(1,105,000 |
) |
|
(422,000 |
) |
||||||
Strategic consulting and litigation costs (2) |
(B) |
|
- |
|
|
(21,000 |
) |
|
(115,000 |
) |
|
(293,000 |
) |
||||||
Intangible Amortization (3) |
(C) |
|
(2,486,000 |
) |
|
(1,943,000 |
) |
|
(7,432,000 |
) |
|
(4,472,000 |
) |
||||||
Corporate separation payment (4) |
(D) |
|
- |
|
|
- |
|
|
(867,000 |
) |
|
(52,000 |
) |
||||||
Non-GAAP adjusted cost of revenue |
$ |
25,345,000 |
|
$ |
19,304,000 |
|
$ |
72,746,000 |
|
$ |
47,626,000 |
|
|||||||
Gross profit: |
|||||||||||||||||||
GAAP gross profit |
$ |
26,912,000 |
|
$ |
26,411,000 |
|
$ |
78,346,000 |
|
$ |
70,184,000 |
|
|||||||
Stock-based compensation charges (1) |
(A) |
|
97,000 |
|
|
154,000 |
|
|
1,105,000 |
|
|
422,000 |
|
||||||
Strategic consulting and litigation costs (2) |
(B) |
|
- |
|
|
21,000 |
|
|
115,000 |
|
|
293,000 |
|
||||||
Intangible Amortization (3) |
(C) |
|
2,486,000 |
|
|
1,943,000 |
|
|
7,432,000 |
|
|
4,472,000 |
|
||||||
Corporate separation payment (4) |
(D) |
|
- |
|
|
- |
|
|
867,000 |
|
|
52,000 |
|
||||||
Non-GAAP adjusted gross profit |
$ |
29,495,000 |
|
$ |
28,529,000 |
|
$ |
87,865,000 |
|
$ |
75,423,000 |
|
|||||||
Research and development expense |
|||||||||||||||||||
GAAP research and development expense |
$ |
5,720,000 |
|
$ |
5,590,000 |
|
$ |
16,926,000 |
|
$ |
15,048,000 |
|
|||||||
Stock-based compensation charges (1) |
(A) |
|
(433,000 |
) |
|
(295,000 |
) |
|
(1,184,000 |
) |
|
(765,000 |
) |
||||||
Strategic consulting and litigation costs (2) |
(B) |
|
- |
|
|
(459,000 |
) |
|
(132,000 |
) |
|
(795,000 |
) |
||||||
Intangible Amortization (3) |
(C) |
|
(76,000 |
) |
|
(76,000 |
) |
|
(227,000 |
) |
|
(227,000 |
) |
||||||
Non-GAAP adjusted research and development expense |
$ |
5,211,000 |
|
$ |
4,760,000 |
|
$ |
15,255,000 |
|
$ |
13,025,000 |
|
|||||||
Selling and marketing expense |
|||||||||||||||||||
GAAP selling and marketing expense |
$ |
13,489,000 |
|
$ |
13,312,000 |
|
$ |
42,288,000 |
|
$ |
37,323,000 |
|
|||||||
Stock-based compensation charges (1) |
(A) |
|
(565,000 |
) |
|
(473,000 |
) |
|
(1,877,000 |
) |
|
(1,590,000 |
) |
||||||
Strategic consulting and litigation costs (2) |
(B) |
|
(160,000 |
) |
|
(511,000 |
) |
|
(212,000 |
) |
|
(1,253,000 |
) |
||||||
Intangible Amortization (3) |
(C) |
|
(3,106,000 |
) |
|
(2,794,000 |
) |
|
(9,333,000 |
) |
|
(7,045,000 |
) |
||||||
Non-GAAP adjusted selling and marketing expense |
$ |
9,658,000 |
|
$ |
9,534,000 |
|
$ |
30,427,000 |
|
$ |
26,796,000 |
|
|||||||
General and administrative expense |
|||||||||||||||||||
GAAP general and administrative expense |
$ |
5,324,000 |
|
$ |
6,280,000 |
|
$ |
15,770,000 |
|
$ |
24,406,000 |
|
|||||||
Stock-based compensation charges (1) |
(A) |
|
(1,013,000 |
) |
|
(711,000 |
) |
|
(3,183,000 |
) |
|
(2,049,000 |
) |
||||||
Strategic consulting and litigation costs (2) |
(B) |
|
(923,000 |
) |
|
(958,000 |
) |
|
(1,125,000 |
) |
|
(9,427,000 |
) |
||||||
Corporate separation payment (4) |
(D) |
|
- |
|
|
- |
|
|
(109,000 |
) |
|
(689,000 |
) |
||||||
Non-GAAP adjusted general and administrative expense |
$ |
3,388,000 |
|
$ |
4,611,000 |
|
$ |
11,353,000 |
|
$ |
12,241,000 |
|
|||||||
Operating income: |
|||||||||||||||||||
GAAP operating income |
$ |
2,379,000 |
|
$ |
1,229,000 |
|
$ |
3,362,000 |
|
$ |
(6,593,000 |
) |
|||||||
Stock-based compensation charges (1) |
(A) |
|
2,108,000 |
|
|
1,633,000 |
|
|
7,349,000 |
|
|
4,826,000 |
|
||||||
Strategic consulting and litigation costs (2) |
(B) |
|
1,083,000 |
|
|
1,949,000 |
|
|
1,584,000 |
|
|
11,768,000 |
|
||||||
Intangible Amortization (3) |
(C) |
|
5,668,000 |
|
|
4,813,000 |
|
|
16,992,000 |
|
|
11,744,000 |
|
||||||
Corporate separation payment (4) |
(D) |
|
- |
|
|
- |
|
|
1,543,000 |
|
|
1,616,000 |
|
||||||
Non-GAAP adjusted operating income |
$ |
11,238,000 |
|
$ |
9,624,000 |
|
$ |
30,830,000 |
|
$ |
23,361,000 |
|
|||||||
$ |
- |
|
|||||||||||||||||
Adjusted Operating Margin |
|
20.5 |
% |
|
20.1 |
% |
|
19.2 |
% |
|
19.0 |
% |
|||||||
Net income: |
|||||||||||||||||||
GAAP net (loss) income |
$ |
(725,000 |
) |
$ |
(1,597,000 |
) |
$ |
(3,480,000 |
) |
$ |
(11,568,000 |
) |
|||||||
Stock-based compensation charges (1) |
(A) |
|
2,108,000 |
|
|
1,633,000 |
|
|
7,349,000 |
|
|
4,826,000 |
|
||||||
Strategic consulting and litigation costs (2) |
(B) |
|
1,083,000 |
|
|
1,949,000 |
|
|
1,584,000 |
|
|
11,768,000 |
|
||||||
Intangible Amortization (3) |
(C) |
|
5,668,000 |
|
|
4,813,000 |
|
|
16,992,000 |
|
|
11,744,000 |
|
||||||
Corporate separation payment (4) |
(D) |
|
- |
|
|
- |
|
|
1,543,000 |
|
|
1,616,000 |
|
||||||
Non-GAAP adjusted net income |
$ |
8,134,000 |
|
$ |
6,798,000 |
|
$ |
23,988,000 |
|
$ |
18,386,000 |
|
|||||||
Deferred tax (benefit) expense |
|
1,077,000 |
|
|
(142,000 |
) |
|
(129,000 |
) |
|
(2,151,000 |
) |
|||||||
Non-GAAP adjusted net income excluding deferred tax (benefit) expense |
$ |
9,211,000 |
|
$ |
6,656,000 |
|
$ |
23,859,000 |
|
$ |
16,235,000 |
|
|||||||
Deemed and accrued dividends on preferred stock |
|
(2,267,000 |
) |
|
(2,090,000 |
) |
|
(6,714,000 |
) |
|
(7,894,000 |
) |
|||||||
Adjusted Net income attributable to common stockholders |
$ |
6,944,000 |
|
$ |
4,566,000 |
|
$ |
17,145,000 |
|
$ |
8,341,000 |
|
|||||||
Diluted net income per common share: |
|||||||||||||||||||
GAAP net income per share before deemed dividends |
$ |
(0.01 |
) |
$ |
(0.03 |
) |
$ |
(0.06 |
) |
$ |
(0.22 |
) |
|||||||
Adjustments per share |
(A-D) |
$ |
0.16 |
|
$ |
0.16 |
|
$ |
0.51 |
|
$ |
0.57 |
|
||||||
Non-GAAP adjusted net income per share before deemed dividends |
$ |
0.15 |
|
$ |
0.13 |
|
$ |
0.44 |
|
$ |
0.35 |
|
|||||||
Deferred tax (benefit) expense impact to Non-GAAP adjusted net income before deemed dividends per share |
(E) |
$ |
0.02 |
|
$ |
(0.00 |
) |
$ |
(0.00 |
) |
$ |
(0.04 |
) |
||||||
Non-GAAP adjusted net income before deemed dividends per share excluding deferred tax (benefit) expense |
$ |
0.17 |
|
$ |
0.13 |
|
$ |
0.44 |
|
$ |
0.31 |
|
|||||||
Deemed dividends per share impact to Non-GAAP adjusted net income |
$ |
(0.04 |
) |
$ |
(0.04 |
) |
$ |
(0.12 |
) |
$ |
(0.15 |
) |
|||||||
Adjusted Net income per share attributable to common stockholders |
$ |
0.13 |
|
$ |
0.09 |
|
$ |
0.32 |
|
$ |
0.16 |
|
|||||||
Shares used to compute Non-GAAP adjusted net income per share - diluted |
|
54,999,114 |
|
|
53,148,078 |
|
|
53,933,721 |
|
|
52,965,163 |
|
|||||||
Reconciliation of Net income to EBITDA and Adjusted EBITDA: |
(F) |
||||||||||||||||||
Net income |
$ |
(725,000 |
) |
$ |
(1,597,000 |
) |
$ |
(3,480,000 |
) |
$ |
(11,568,000 |
) |
|||||||
Income tax provision |
|
1,196,000 |
|
|
(133,000 |
) |
|
(244,000 |
) |
|
(2,308,000 |
) |
|||||||
Interest expense |
|
2,035,000 |
|
|
2,973,000 |
|
|
7,190,000 |
|
|
7,398,000 |
|
|||||||
Depreciation |
|
1,204,000 |
|
|
1,402,000 |
|
|
3,801,000 |
|
|
3,637,000 |
|
|||||||
Amortization |
|
6,887,000 |
|
|
5,274,000 |
|
|
19,804,000 |
|
|
12,665,000 |
|
|||||||
EBITDA |
|
10,597,000 |
|
|
7,919,000 |
|
|
27,071,000 |
|
|
9,824,000 |
|
|||||||
Adjustments: |
|||||||||||||||||||
Stock-based compensation charges (1) |
(A) |
|
2,108,000 |
|
|
1,633,000 |
|
|
7,349,000 |
|
|
4,826,000 |
|
||||||
Strategic consulting and litigation costs (2) |
(B) |
|
1,083,000 |
|
|
1,949,000 |
|
|
1,584,000 |
|
|
11,768,000 |
|
||||||
Corporate separation payment (4) |
(D) |
|
- |
|
|
- |
|
|
1,543,000 |
|
|
1,616,000 |
|
||||||
Adjusted EBITDA |
$ |
13,788,000 |
|
$ |
11,501,000 |
|
$ |
37,547,000 |
|
$ |
28,034,000 |
|
|||||||
Adjusted EBITDA margin |
|
25.1 |
% |
|
24.0 |
% |
|
23.4 |
% |
|
22.8 |
% |
|||||||
(1) Stock-based compensation charges are included as follows: |
|||||||||||||||||||
Cost of revenues |
$ |
97,000 |
|
$ |
154,000 |
|
$ |
1,105,000 |
|
$ |
422,000 |
|
|||||||
Research and development |
|
433,000 |
|
|
295,000 |
|
|
1,184,000 |
|
|
765,000 |
|
|||||||
Selling and marketing |
|
565,000 |
|
|
473,000 |
|
|
1,877,000 |
|
|
1,590,000 |
|
|||||||
General and administrative |
|
1,013,000 |
|
|
711,000 |
|
|
3,183,000 |
|
|
2,049,000 |
|
|||||||
$ |
2,108,000 |
|
$ |
1,633,000 |
|
$ |
7,349,000 |
|
$ |
4,826,000 |
|
||||||||
(2) Strategic consulting, acquisition, integration and litigation costs are included as follows: |
|||||||||||||||||||
Cost of revenues |
|
|
- |
|
|
|
21,000 |
|
|
|
115,000 |
|
|
|
293,000 |
|
|
|
|
Research and development |
|
- |
|
|
459,000 |
|
|
132,000 |
|
|
795,000 |
|
|||||||
Selling and marketing |
|
160,000 |
|
|
511,000 |
|
|
212,000 |
|
|
1,253,000 |
|
|||||||
General and administrative |
|
923,000 |
|
|
958,000 |
|
|
1,125,000 |
|
|
9,427,000 |
|
|||||||
$ |
1,083,000 |
|
$ |
1,949,000 |
|
$ |
1,584,000 |
|
$ |
11,768,000 |
|
||||||||
(3) Intangible Amortization is included as follows: |
|||||||||||||||||||
Cost of revenues |
|
2,486,000 |
|
|
1,943,000 |
|
|
7,432,000 |
|
|
4,472,000 |
|
|||||||
Research and development |
|
76,000 |
|
|
76,000 |
|
|
227,000 |
|
|
227,000 |
|
|||||||
Selling and marketing |
|
3,106,000 |
|
|
2,794,000 |
|
|
9,333,000 |
|
|
7,045,000 |
|
|||||||
$ |
5,668,000 |
|
$ |
4,813,000 |
|
$ |
16,992,000 |
|
$ |
11,744,000 |
|
||||||||
(4) Corporate separation payment is included as follows: |
|||||||||||||||||||
Cost of revenues |
|
- |
|
|
- |
|
|
867,000 |
|
|
52,000 |
|
|||||||
Research and development |
|
- |
|
|
- |
|
|
128,000 |
|
|
236,000 |
|
|||||||
Selling and marketing |
|
- |
|
|
- |
|
|
439,000 |
|
|
639,000 |
|
|||||||
General and administrative |
|
- |
|
|
- |
|
|
109,000 |
|
|
689,000 |
|
|||||||
$ |
- |
|
$ |
- |
|
$ |
1,543,000 |
|
$ |
1,616,000 |
|
||||||||
(5) Net Income tax components: |
|||||||||||||||||||
Current tax (benefit)/expense |
|
119,000 |
|
|
9,000 |
|
|
(115,000 |
) |
|
(157,000 |
) |
|||||||
Deferred tax (benefit)/expense |
|
1,077,000 |
|
|
(142,000 |
) |
|
(129,000 |
) |
|
(2,151,000 |
) |
|||||||
$ |
1,196,000 |
|
$ |
(133,000 |
) |
$ |
(244,000 |
) |
$ |
(2,308,000 |
) |
||||||||
| 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 |
Three Months Ended |
Twelve Months Ended |
Twelve Months Ended |
|||||||||||||
December 31, |
December 31, |
December 31, |
December 31, |
|||||||||||||
2020 |
2020 |
2020 |
2020 |
|||||||||||||
Revenue: |
||||||||||||||||
GAAP revenue |
$ |
56,400,000 |
|
$ |
57,400,000 |
|
$ |
217,000,000 |
|
$ |
218,000,000 |
|
||||
Diluted net income per common share: |
||||||||||||||||
GAAP net income |
$ |
(0.04 |
) |
$ |
(0.04 |
) |
$ |
(0.10 |
) |
$ |
(0.10 |
) |
||||
Stock-based compensation charges |
$ |
0.05 |
|
$ |
0.05 |
|
$ |
0.18 |
|
$ |
0.19 |
|
||||
Strategic consulting, acquisition and litigation costs |
$ |
0.04 |
|
$ |
0.04 |
|
$ |
0.07 |
|
$ |
0.07 |
|
||||
Intangible Amortization |
$ |
0.11 |
|
$ |
0.11 |
|
$ |
0.43 |
|
$ |
0.43 |
|
||||
Corporate separation payment |
$ |
- |
|
$ |
- |
|
$ |
0.03 |
|
$ |
0.03 |
|
||||
Non-GAAP adjusted net income per share |
$ |
0.16 |
|
$ |
0.17 |
|
$ |
0.60 |
|
$ |
0.62 |
|
||||
Deferred tax (benefit) expense |
$ |
0.00 |
|
$ |
(0.00 |
) |
$ |
0.00 |
|
$ |
(0.01 |
) |
||||
Non-GAAP adjusted net income before deemed dividends per share excluding deferred tax (benefit) expense |
$ |
0.16 |
|
$ |
0.17 |
|
$ |
0.60 |
|
$ |
0.61 |
|
||||
Deemed dividends per share impact to Non-GAAP adjusted net income |
$ |
(0.04 |
) |
$ |
(0.05 |
) |
$ |
(0.17 |
) |
$ |
(0.18 |
) |
||||
Adjusted Net income per share attributable to common stockholders |
$ |
0.12 |
|
$ |
0.12 |
|
$ |
0.44 |
|
$ |
0.43 |
|
||||
GAAP fully diluted earnings (loss) per share attributable to common stockholders |
$ |
(0.08 |
) |
$ |
(0.09 |
) |
$ |
(0.27 |
) |
$ |
(0.28 |
) |
||||
Shares used to compute Non-GAAP adjusted net income per share - diluted |
|
55,500,000 |
|
|
55,500,000 |
|
|
54,000,000 |
|
|
54,000,000 |
|
||||
| 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. | |||||
| ZIX CORPORATION |
| NOTES TO RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES |
USE OF NON-GAAP FINANCIAL INFORMATION
The Company occasionally utilizes financial measures and terms not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) in order to provide investors with an alternative method for assessing our operating results in a manner that enables investors to more thoroughly evaluate our current performance as compared to past performance. We also believe these Non-GAAP measures provide investors with a more informed baseline for modeling the Company’s future financial performance. Management uses these Non-GAAP financial measures to make operational and investment decisions, to evaluate the Company's performance, to forecast and to determine compensation. Further, management utilizes these performance measures for purposes of comparison with its business plan and individual operating budgets and allocation of resources. We believe that our investors should have access to, and that we are obligated to provide, the same set of tools that we use in analyzing our results. These Non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. We have provided definitions below for certain Non-GAAP financial measures, together with an explanation of why management uses these measures and why management believes that these Non-GAAP financial measures are useful to investors. In addition, in our earnings release we have provided tables to reconcile the Non-GAAP financial measures utilized to GAAP financial measures.
ADJUSTED NON-GAAP MEASURES
Our Non-GAAP measures adjust GAAP Cost of revenue, Gross profit, Research and development expense, Selling and marketing expense, General and administrative expense, Operating income, Net income, Net Income excluding deferred tax (benefit) expense, Net income per share - diluted, Net income per share - diluted excluding deferred tax (benefit) expense, and EBITDA for non-cash stock-based compensation expense, and strategic consulting and litigation costs to derive Non-GAAP adjusted Cost of revenue, adjusted Gross profit, adjusted Research and development expense, adjusted Selling and marketing expense, adjusted General and administrative expense, adjusted Operating income, adjusted Net income, adjusted Net income per share - diluted and adjusted EBITDA. We provide a reconciliation of these adjusted Non-GAAP measures to GAAP Gross profit, Operating income, Net income, Net income per share - diluted and EBITDA.
Our forward-looking adjusted Non-GAAP earnings per share information consistently excludes non-cash stock-based compensation expense. Additionally, the adjusted Non-GAAP earnings per share will consistently exclude 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 to Non-GAAP Financial Measures" table are listed to the right of certain categories under "Gross profit," "Operating income," "Net income," "Net income excluding deferred tax (benefit) expense," "Net income per share - diluted," "Net income per share excluding deferred tax (benefit) expense- 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 of non-cash stock-based compensation charges on our operating results.
(B) Strategic consulting, acquisition integration 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) Deferred tax expense represents the non-cash tax expense included in the GAAP tax provision, including the current period utilization of deferred tax assets created in previous periods. The remaining provision for income taxes represents expected cash taxes to be paid.
(F) EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA adds back stock-based compensation charges and litigation expenses.
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