ZIX CORPORATION Zix Corporation (Zix) (NASDAQ: ZIXI), a leader in email security, today announced financial results for the second quarter ended June 30, 2019.
Second Quarter 2019 Financial Highlights (results compared to the same year-ago quarter)
- Revenue increased 162% to $45.9 million. Total overall organic revenue growth across Zix and AppRiver was 15%.
- Annual recurring revenue (ARR), representing contract value attributable to the 12 months ending June 30, 2019, increased 162% to $193.7 million. Total overall organic ARR growth across Zix and AppRiver was 17%.
- Total billings increased 7% to $46.3 million.
- GAAP net loss attributable to common stockholders totaled $7.1 million compared to net income of $1.8 million. The company’s net loss attributable to common shareholders includes the effect of a deemed dividend to preferred shareholders of $3.4 million and acquisition-related expenses of $2.8 million.
- GAAP fully diluted earnings (loss) per share attributable to common stockholders totaled ($0.13) compared to $0.03.
- Non-GAAP adjusted net income before deemed dividends and excluding deferred tax (benefit) expense totaled $5.8 million compared to $3.9 million. The company’s Q2 2019 non-GAAP adjusted net income also excludes $2.8 million of acquisition-related expenses.
- Non-GAAP adjusted net income per share before deemed dividends and excluding deferred tax (benefit) expense and acquisition-related expenses increased 51% to $0.11.
- Adjusted EBITDA increased 143% to $10.7 million, representing an adjusted EBITDA margin of 23.4%.
Management Commentary
“The second quarter of 2019 demonstrated the continued solid execution of our strategy, as we delivered another quarter of strong, profitable growth and made significant progress integrating Zix and AppRiver,” said David Wagner, Zix’s Chief Executive Officer. “We achieved overall organic revenue growth of 15% and adjusted EBITDA margin of 23%—pushing us right up against ‘the rule of 40,’ and demonstrating that our business is moving in the right direction. We also delivered on our first product integration milestones ahead of schedule, and we are seeing early signs of strong cross-selling with more than 150 trials of ZixEncrypt and ZixArchive in the AppRiver channel and more than a dozen closed Office 365 deals in the Zix channel during the second quarter. Looking ahead, we are beginning to execute on our longer-term product integration objectives and we are focusing on accelerating cross-sales. Over time, this will enable us to drive higher attach rates, Annual Recurring Revenue, and revenue growth, which will further validate the AppRiver acquisition and our strategy to maximize shareholder value.”
Zix’s Chief Financial Officer Dave Rockvam added: “As our results for the quarter demonstrate, we are continuing to build a head of steam, generating significant progress integrating AppRiver, expanding our product suite into the cloud, starting new trials, securing new customers, and retaining and cross-selling our installed base. For the company as a whole, the business performance translated into organic Annual Recurring Revenue growth of 17%. Total revenue of $45.9 million helped us exceed our revenue guidance, and our adjusted EBITDA margin increased 360 basis points sequentially to more than 23%, as we continue to outperform and build a foundation for more robust profitable growth. Overall, these past six months have shown us not only the synergistic elements of Zix’s and AppRiver’s businesses, partners, products, and customers, but also that our team is driven by the vision and opportunity of building the leading cloud-based email security and productivity solutions provider in the marketplace.”
Recent Operational Highlights
- Extended unified information archiving to assist AppRiver partners and customers with compliance challenges
- Acquired the assets of email security provider DeliverySlip, expanding the company’s product suite and customer base, delivering cost savings, and creating additional cross-selling opportunities
- Integrated and launched Office 365 productivity solutions for Zix’s direct sales teams and channel partners
- Integrated and launched ZixEncrypt and ZixArchive for AppRiver’s 4,500+ MSP partners
Second Quarter 2019 Corporate Financial Summary and Other Operational Metrics (1)
$ in Millions, except per share data | Q2 2019 | Q2 2018 | Change (2) |
Revenue | $45.9 | $17.5 | 162.4% |
GAAP Net Income (Loss) Attributable to Common Stockholders | ($7.1) | $1.8 | (384.6%) |
GAAP Net Income (Loss) Per Share Attributable to Common Stockholders – Diluted | ($0.13) | $0.03 | (380.6%) |
Non-GAAP Adjusted Net Income Attributable to Common Stockholders (4) | $2.5 | $3.9 | (36.8%) |
Non-GAAP Adjusted Net Income Per Share Attributable to Common Stockholders – Diluted (4) | $0.05 | $0.07 | (33.8%) |
Non-GAAP Adjusted Net Income Before Deemed Dividends | $6.7 | $3.1 | 117.3% |
Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends - Diluted | $0.13 | $0.06 | 118.1% |
Non-GAAP Adjusted Net Income Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense and Acquisition Expense | $5.8 | $3.9 | 50.2% |
Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense and Acquisition Expense | $0.11 | $0.07 | 50.8% |
EBITDA (3)(4) | $5.4 | $3.4 | 55.8% |
EBITDA Margin | 11.7% | 19.7% | (8.0 pts) |
Adjusted EBITDA (4) | $10.7 | $4.4 | 143.2% |
Adjusted EBITDA Margin (4) | 23.4% | 25.2% | (1.8 pts) |
Total Billings | $46.3 | $43.1 | 7.3% |
Fiscal Six Months 2019 Corporate Financial Summary and Other Operational Metrics (1)
$ in Millions, except per share data | YTD 2019 | YTD 2018 | Change (2) |
Revenue | $75.2 | $34.2 | 120.2% |
GAAP Net Income (Loss) Attributable to Common Stockholders | ($15.8) | $3.8 | (422.7%) |
GAAP Net Income (Loss) Per Share Attributable to Common Stockholders – Diluted | ($0.30) | $0.07 | (421.1%) |
Non-GAAP Adjusted Net Income Attributable to Common Stockholders (4) | $3.8 | $8.2 | (53.9%) |
Non-GAAP Adjusted Net Income Per Share Attributable to Common Stockholders – Diluted (4) | $0.07 | $0.15 | (52.2%) |
Non-GAAP Adjusted Net Income Before Deemed Dividends | $11.6 | 6.5 | 78.5% |
Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends – Diluted | $0.22 | $0.12 | 80.1% |
Non-GAAP Adjusted Net Income Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense and Acquisition Expense | $9.6 | 8.2 | 17.0% |
Non-GAAP Adjusted Net Income Per Share Before Deemed Dividends Excluding Deferred Tax (Benefit) Expense and Acquisition Expense - Diluted | $0.18 | $0.15 | 18.1% |
EBITDA (3)(4) | $1.9 | $6.9 | (72.5%) |
EBITDA Margin | 2.5% | 20.3% | (17.7 pts) |
Adjusted EBITDA (4) | $16.5 | $9.2 | 78.9% |
Adjusted EBITDA Margin (4) | 22.0% | 27.1% | (5.1 pts) |
Total Billings | $74.7 | $68.0 | 10.0% |
ARR (at June 30, 2019) | $193.7 | $74.0 | 161.8% |
(1) | Metrics include results from AppRiver, unless otherwise specified |
(2) | Changes are based on actual numbers versus numbers shown in the columns, which may reflect rounding |
(3) | Earnings before interest, taxes, depreciation and amortization |
(4) | A reconciliation of GAAP to non-GAAP results is included in this press release and available on the Zix investor relations website at http://investor.zixcorp.com |
Financial Outlook
For the third quarter of 2019, the company forecasts revenue to range between $47.0 million and $47.5 million. The company forecasts fully diluted GAAP earnings (loss) per share to be in a range of ($0.04) and ($0.02) and fully diluted non-GAAP adjusted earnings per share to be between $0.12 and $0.14 for the third quarter of 2019. The financial outlook includes a required GAAP adjustment on the deferred revenue acquired from AppRiver.
Zix is targeting ARR of approximately $204 million to $209 million (previously $202 million to $209 million) at fiscal 2019 year end, representing a growth rate of approximately 13% to 16% (previously 12% to 16%) year-over-year. Zix management is also expecting revenue of approximately $48.0 million to $50 million (previously $47.0 million to $50.0 million) with a 25% adjusted EBITDA margin (previously 24%) in the fourth quarter of 2019.
For the fiscal year of 2019, the company is increasing its previously disclosed revenue guidance to a range of between $170.0 million to $172.0 million (previously $167.0 million to $169.0 million), representing an increase of between 141% and 144% (previously 135% and 140%) compared to fiscal year 2018. The company also updates its fully diluted GAAP earnings (loss) per share guidance to a range of between ($0.24) and ($0.21) [previously ($0.10) and $0.02] and increases its fully diluted non-GAAP adjusted earnings per share guidance to be between a range of $0.44 and $0.46 for fiscal year 2019 (previously $0.40 and $0.42). The financial outlook includes approximately 10 months of AppRiver financial results consolidated into Zix and also includes a required GAAP adjustment on the deferred revenue acquired from AppRiver. Zix is forecasting Q3, Q4 and full year 2019 to result in a GAAP net loss position and will be using an approximate basic share count of 53.3 million for Q3 and 53.5 million for Q4.
Conference Call Information
Management will discuss these financial results and outlook on a conference call today (August 1, 2019) at 5:00 p.m. ET (2:00 p.m. PT).
A live webcast of the conference call will be available in the investor relations section of Zix’s website here. Alternatively, participants can access the conference call by dialing 1-855-853-6940 (U.S. toll-free) or 1-720-634-2906 (international) at least 15 minutes before the call and entering access code 7877124. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 1-949-574-3860.
An audio replay of the conference will be available for seven days, by dialing 1-855-859-2056 (U.S. toll-free) or 1-404-537-3406 (international) and entering the access code 7877124. An archive of the webcast will also be available on the Zix investor relations website.
About Zix Corporation
Zix Corporation (Zix) is a leader in email security. Trusted by the nation’s most influential institutions in healthcare, finance and government, Zix delivers a superior experience and easy-to-use solutions for email encryption and data loss prevention, advanced threat protection, unified information archiving and bring your own device (BYOD) mobile security. Focusing on the protection of business communication, Zix enables its customers to better secure data and meet compliance needs. Zix is publicly traded on the Nasdaq Global Market under the symbol ZIXI. For more information, visit www.zixcorp.com.
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, and how privacy and data security laws may affect demand for Zix data protection solutions. Zix may not succeed in addressing these and other risks. Further information regarding factors that could affect Zix’s business and its financial and other results can be found in the risk factors section of Zix’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, each as filed with the Securities and Exchange Commission, as those risk factors may be supplemented in subsequent filings.
ZIX CORPORATION | |||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||
June 30, |
|
| |||
| 2019 |
| December 31, | ||
| (unaudited) |
| 2018 | ||
ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 11,323,000 | $ | 27,109,000 | |
Receivables, net |
| 8,970,000 |
| 3,188,000 | |
Prepaid and other current assets |
| 4,609,000 |
| 3,176,000 | |
Total current assets |
| 24,902,000 |
| 33,473,000 | |
Property and equipment, net |
| 9,475,000 |
| 3,924,000 | |
Operating lease assets |
| 10,698,000 |
| - | |
Other assets and deferred costs |
| 10,581,000 |
| 9,424,000 | |
Intangible Assets, Net |
| 152,586,000 |
| 15,251,000 | |
Goodwill |
| 173,398,000 |
| 13,783,000 | |
Deferred tax assets |
| 30,793,000 |
| 28,785,000 | |
Total assets | $ | 412,433,000 | $ | 104,640,000 | |
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY | |||||
Current liabilities: | |||||
Accounts payable and accrued expenses | $ | 25,632,000 | $ | 10,516,000 | |
Deferred revenue |
| 43,456,000 |
| 30,622,000 | |
Other current liabilities |
| 5,803,000 |
| - | |
Total current liabilities |
| 74,891,000 |
| 41,138,000 | |
Long-term liabilities: | |||||
Deferred revenue |
| 1,414,000 |
| 1,539,000 | |
Deferred rent |
| - |
| 1,016,000 | |
Operating lease liabilities |
| 10,575,000 |
| - | |
Debt |
| 176,563,000 |
| - | |
Total long-term liabilities |
| 188,552,000 |
| 2,555,000 | |
Total liabilities |
| 263,443,000 |
| 43,693,000 | |
Total preferred stock |
| 102,347,000 |
| - | |
Total stockholders’ equity |
| 46,643,000 |
| 60,947,000 | |
Total liabilities, preferred stock and stockholders’ equity | $ | 412,433,000 | $ | 104,640,000 | |
ZIX CORPORATION | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(Unaudited) | |||||||||||||||
| Three Months Ended June 30 |
| Six Months Ended June 30, | ||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||
Revenue | $ | 45,916,000 |
| $ | 17,500,000 |
| $ | 75,215,000 |
| $ | 34,153,000 |
| |||
Cost of revenue |
| 20,304,000 |
|
| 3,806,000 |
|
| 31,443,000 |
|
| 7,319,000 |
| |||
Gross profit |
| 25,612,000 |
|
| 13,694,000 |
|
| 43,772,000 |
|
| 26,834,000 |
| |||
Operating expenses: | |||||||||||||||
Research and development |
| 5,311,000 |
|
| 2,978,000 |
|
| 9,458,000 |
|
| 5,956,000 |
| |||
Selling, general and administrative |
| 21,872,000 |
|
| 8,562,000 |
|
| 42,136,000 |
|
| 16,115,000 |
| |||
Total operating expenses |
| 27,183,000 |
|
| 11,540,000 |
|
| 51,594,000 |
|
| 22,071,000 |
| |||
Operating income |
| (1,571,000 | ) |
| 2,154,000 |
|
| (7,822,000 | ) |
| 4,763,000 |
| |||
Operating margin |
| -3 | % |
| 12 | % |
| -10 | % |
| 14 | % | |||
Other income (expense) | |||||||||||||||
Investment and other income |
| 9,000 |
|
| 360,000 |
|
| 101,000 |
|
| 479,000 |
| |||
Interest expense and other expense |
| (3,167,000 | ) |
| - |
|
| (4,425,000 | ) |
| - |
| |||
Total other income (expense) |
| (3,158,000 | ) |
| 360,000 |
|
| (4,324,000 | ) |
| 479,000 |
| |||
Income before income taxes |
| (4,729,000 | ) |
| 2,514,000 |
|
| (12,146,000 | ) |
| 5,242,000 |
| |||
Income tax benefit (expense) |
| 1,027,000 |
|
| (674,000 | ) |
| 2,175,000 |
|
| (1,510,000 | ) | |||
Net (loss) income | $ | (3,702,000 | ) | $ | 1,840,000 |
| $ | (9,971,000 | ) | $ | 3,732,000 |
| |||
Deemed and accrued dividends on preferred stock |
| (3,371,000 | ) |
| - |
|
| (5,804,000 | ) |
| - |
| |||
Net (loss) income attributable to common shareholders | $ | (7,073,000 | ) | $ | 1,840,000 |
| $ | (15,775,000 | ) | $ | 3,732,000 |
| |||
Basic (loss) income per share attributable to common shareholders: | $ | (0.13 | ) | $ | 0.04 |
| $ | (0.30 | ) | $ | 0.07 |
| |||
Diluted (loss) income per share attributable to common shareholders: | $ | (0.13 | ) | $ | 0.03 |
| $ | (0.30 | ) | $ | 0.07 |
| |||
Shares used in per share calculation - basic |
| 53,028,854 |
|
| 52,467,904 |
|
| 52,872,190 |
|
| 52,670,540 |
| |||
Shares used in per share calculation - diluted |
| 53,028,854 |
|
| 53,217,100 |
|
| 52,872,190 |
|
| 53,347,976 |
| |||
Other Comprehensive income, net of tax: | |||||||||||||||
Foreign currency translation adjustments |
| (55,000 | ) |
| - |
|
| (88,000 | ) |
| - |
| |||
Comprehensive income | $ | (3,757,000 | ) | $ | 1,840,000 |
| $ | (10,059,000 | ) | $ | 3,732,000 |
| |||
ZIX CORPORATION | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(Unaudited) | |||||||
Six Months Ended June 30, | |||||||
| 2019 |
| 2018 | ||||
Operating activities: | |||||||
Net (loss) income | $ | (9,971,000 | ) | $ | 3,732,000 |
| |
Non-cash items in net income |
| 11,165,000 |
|
| 4,844,000 |
| |
Changes in operating assets and liabilities |
| 119,000 |
|
| (4,173,000 | ) | |
Net cash provided by operating activities |
| 1,313,000 |
|
| 4,403,000 |
| |
Investing activities: | |||||||
Purchases of property and equipment and capitalized software |
| (4,536,000 | ) |
| (1,367,000 | ) | |
Acquisition of business, net of cash acquired |
| (283,245,000 | ) |
| (11,773,000 | ) | |
Net cash used in investing activities |
| (287,781,000 | ) |
| (13,140,000 | ) | |
Financing activities: | |||||||
Proceeds from issuance of series A preferred stock, net of offering costs |
| 96,588,000 |
|
| - |
| |
Proceeds from exercise of stock options |
| 180,000 |
|
| 33,000 |
| |
Proceeds from long term debt |
| 185,000,000 |
|
| - |
| |
Debt issuance costs |
| (6,443,000 | ) |
| - |
| |
Repayment of long term debt |
| (438,000 | ) |
| - |
| |
Repayment of finance lease obligations |
| (770,000 | ) |
| - |
| |
Payment of acquisition-related contingent consideration |
| (1,540,000 | ) |
| (605,000 | ) | |
Purchase of treasury stock |
| (1,814,000 | ) |
| (6,004,000 | ) | |
Net cash provided used in financing activities |
| 270,763,000 |
|
| (6,576,000 | ) | |
Effect of exchange rate changes on cash |
| (81,000 | ) |
| - |
| |
(Decrease) Increase in cash and cash equivalents |
| (15,786,000 | ) |
| (15,313,000 | ) | |
Cash and cash equivalents, beginning of period |
| 27,109,000 |
|
| 33,009,000 |
| |
Cash and cash equivalents, end of period | $ | 11,323,000 |
| $ | 17,696,000 |
| |
ZIX CORPORATION | ||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended |
| Six Months Ended | ||||||||||||||
June 30, |
| June 30, | ||||||||||||||
2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||||
Revenue: | ||||||||||||||||
GAAP revenue | $ | 45,916,000 |
| $ | 17,500,000 |
| $ | 75,215,000 |
| $ | 34,153,000 |
| ||||
Cost of revenue | ||||||||||||||||
GAAP cost of revenue | $ | 20,304,000 |
| $ | 3,806,000 |
| $ | 31,443,000 |
| $ | 7,319,000 |
| ||||
Stock-based compensation charges (1) | (A) |
| (163,000 | ) |
| (80,000 | ) |
| (267,000 | ) |
| (147,000 | ) | |||
Strategic consulting and litigation costs (2) | (B) |
| (243,000 | ) |
| - |
|
| (272,000 | ) |
| (1,000 | ) | |||
Intangible Amortization (3) | (C) |
| (1,893,000 | ) |
| (63,000 | ) |
| (2,528,000 | ) |
| (140,000 | ) | |||
Corporate separation payment (4) | (D) |
| (3,000 | ) |
| (28,000 | ) |
| (52,000 | ) |
| (28,000 | ) | |||
Non-GAAP adjusted cost of revenue | $ | 18,002,000 |
| $ | 3,635,000 |
| $ | 28,324,000 |
| $ | 7,003,000 |
| ||||
Gross profit: | ||||||||||||||||
GAAP gross profit | $ | 25,612,000 |
| $ | 13,694,000 |
| $ | 43,772,000 |
| $ | 26,834,000 |
| ||||
Stock-based compensation charges (1) | (A) |
| 163,000 |
|
| 80,000 |
|
| 267,000 |
|
| 147,000 |
| |||
Strategic consulting and litigation costs (2) | (B) |
| 243,000 |
|
| - |
|
| 272,000 |
|
| 1,000 |
| |||
Intangible Amortization (3) | (C) |
| 1,893,000 |
|
| 63,000 |
|
| 2,528,000 |
|
| 140,000 |
| |||
Corporate separation payment (4) | (D) |
| 3,000 |
|
| 28,000 |
|
| 52,000 |
|
| 28,000 |
| |||
Non-GAAP adjusted gross profit | $ | 27,914,000 |
| $ | 13,865,000 |
| $ | 46,891,000 |
| $ | 27,150,000 |
| ||||
Research and development expense | ||||||||||||||||
GAAP research and development expense | $ | 5,311,000 |
| $ | 2,978,000 |
| $ | 9,458,000 |
| $ | 5,956,000 |
| ||||
Stock-based compensation charges (1) | (A) |
| (296,000 | ) |
| (112,000 | ) |
| (470,000 | ) |
| (203,000 | ) | |||
Strategic consulting and litigation costs (2) | (B) |
| (164,000 | ) |
| (2,000 | ) |
| (335,000 | ) |
| (58,000 | ) | |||
Intangible Amortization (3) | (C) |
| (76,000 | ) |
| (76,000 | ) |
| (152,000 | ) |
| (76,000 | ) | |||
Non-GAAP adjusted research and development expense | $ | 4,800,000 |
| $ | 2,788,000 |
| $ | 8,265,000 |
| $ | 5,619,000 |
| ||||
Selling and marketing expense | ||||||||||||||||
GAAP selling and marketing expense | $ | 14,077,000 |
| $ | 5,453,000 |
| $ | 24,011,000 |
| $ | 9,831,000 |
| ||||
Stock-based compensation charges (1) | (A) |
| (686,000 | ) |
| (230,000 | ) |
| (1,118,000 | ) |
| (413,000 | ) | |||
Strategic consulting and litigation costs (2) | (B) |
| (341,000 | ) |
| - |
|
| (742,000 | ) |
| (7,000 | ) | |||
Intangible Amortization (3) | (C) |
| (3,110,000 | ) |
| (155,000 | ) |
| (4,251,000 | ) |
| (224,000 | ) | |||
Non-GAAP adjusted selling and marketing expense | $ | 9,779,000 |
| $ | 5,068,000 |
| $ | 17,261,000 |
| $ | 9,187,000 |
| ||||
General and administrative expense | ||||||||||||||||
GAAP general and administrative expense | $ | 7,795,000 |
| $ | 3,109,000 |
| $ | 18,125,000 |
| $ | 6,284,000 |
| ||||
Stock-based compensation charges (1) | (A) |
| (819,000 | ) |
| (422,000 | ) |
| (1,338,000 | ) |
| (709,000 | ) | |||
Strategic consulting and litigation costs (2) | (B) |
| (2,052,000 | ) |
| (87,000 | ) |
| (8,469,000 | ) |
| (794,000 | ) | |||
Corporate separation payment (4) | (D) |
| (449,000 | ) |
| - |
|
| (689,000 | ) |
| 40,000 |
| |||
Non-GAAP adjusted general and administrative expense | $ | 4,475,000 |
| $ | 2,600,000 |
| $ | 7,629,000 |
| $ | 4,821,000 |
| ||||
Operating income: | ||||||||||||||||
GAAP operating income | $ | (1,571,000 | ) | $ | 2,154,000 |
| $ | (7,822,000 | ) | $ | 4,763,000 |
| ||||
Stock-based compensation charges (1) | (A) |
| 1,964,000 |
|
| 844,000 |
|
| 3,193,000 |
|
| 1,472,000 |
| |||
Strategic consulting and litigation costs (2) | (B) |
| 2,800,000 |
|
| 89,000 |
|
| 9,818,000 |
|
| 860,000 |
| |||
Intangible Amortization (3) | (C) |
| 5,079,000 |
|
| 294,000 |
|
| 6,931,000 |
|
| 440,000 |
| |||
Corporate separation payment (4) | (D) |
| 588,000 |
|
| 28,000 |
|
| 1,616,000 |
|
| (12,000 | ) | |||
Non-GAAP adjusted operating income | $ | 8,860,000 |
| $ | 3,409,000 |
| $ | 13,736,000 |
| $ | 7,523,000 |
| ||||
Adjusted Operating Margin |
| 19.3 | % |
| 19.5 | % |
| 18.3 | % |
| 22.0 | % | ||||
Net income: | ||||||||||||||||
GAAP net (loss) income | $ | (3,702,000 | ) | $ | 1,840,000 |
| $ | (9,971,000 | ) | $ | 3,732,000 |
| ||||
Stock-based compensation charges (1) | (A) |
| 1,964,000 |
|
| 844,000 |
|
| 3,193,000 |
|
| 1,472,000 |
| |||
Strategic consulting and litigation costs (2) | (B) |
| 2,800,000 |
|
| 89,000 |
|
| 9,818,000 |
|
| 860,000 |
| |||
Intangible Amortization (3) | (C) |
| 5,079,000 |
|
| 294,000 |
|
| 6,931,000 |
|
| 440,000 |
| |||
Corporate separation payment (4) | (D) |
| 588,000 |
|
| 28,000 |
|
| 1,616,000 |
|
| (12,000 | ) | |||
Non-GAAP adjusted net income | $ | 6,729,000 |
| $ | 3,095,000 |
| $ | 11,587,000 |
| $ | 6,492,000 |
| ||||
Deferred tax (benefit) expense |
| (904,000 | ) |
| 780,000 |
|
| (2,008,000 | ) |
| 1,692,000 |
| ||||
Non-GAAP adjusted net income excluding deferred tax (benefit) expense | $ | 5,825,000 |
| $ | 3,875,000 |
| $ | 9,579,000 |
| $ | 8,184,000 |
| ||||
Deemed and accrued dividends on preferred stock |
| (3,371,000 | ) |
| - |
|
| (5,804,000 | ) |
| - |
| ||||
Adjusted Net income attributable to common stockholders | $ | 2,454,000 |
| $ | 3,875,000 |
| $ | 3,775,000 |
| $ | 8,184,000 |
| ||||
Diluted net income per common share: | ||||||||||||||||
GAAP net income per share before deemed dividends | $ | (0.07 | ) | $ | 0.03 |
| $ | (0.19 | ) | $ | 0.07 |
| ||||
Adjustments per share | (A-D) | $ | 0.20 |
| $ | 0.02 |
| $ | 0.41 |
| $ | 0.05 |
| |||
Non-GAAP adjusted net income per share before deemed dividends | $ | 0.13 |
| $ | 0.06 |
| $ | 0.22 |
| $ | 0.12 |
| ||||
Deferred tax (benefit) expense impact to Non-GAAP adjusted net income before deemed dividends per share | (E) | $ | (0.01 | ) | $ | 0.01 |
| $ | (0.04 | ) | $ | 0.03 |
| |||
Non-GAAP adjusted net income before deemed dividends per share excluding deferred tax (benefit) expense | $ | 0.11 |
| $ | 0.07 |
| $ | 0.18 |
| $ | 0.15 |
| ||||
Deemed dividends per share impact to Non-GAAP adjusted net income | $ | (0.06 | ) | $ | - |
| $ | (0.11 | ) | $ | - |
| ||||
Adjusted Net income per share attributable to common stockholders | $ | 0.05 |
| $ | 0.07 |
| $ | 0.07 |
| $ | 0.15 |
| ||||
Shares used to compute Non-GAAP adjusted net income per share - diluted |
| 53,028,854 |
|
| 53,217,100 |
|
| 52,872,190 |
|
| 53,347,976 |
| ||||
Reconciliation of Net income to EBITDA and Adjusted EBITDA: | (F) | |||||||||||||||
Net income | $ | (3,702,000 | ) | $ | 1,840,000 |
| $ | (9,971,000 | ) | $ | 3,732,000 |
| ||||
Income tax provision |
| (1,027,000 | ) |
| 674,000 |
|
| (2,175,000 | ) |
| 1,510,000 |
| ||||
Interest expense |
| 3,171,000 |
|
| - |
|
| 4,425,000 |
|
| - |
| ||||
Depreciation |
| 1,551,000 |
|
| 577,000 |
|
| 2,236,000 |
|
| 1,175,000 |
| ||||
Amortization |
| 5,385,000 |
|
| 358,000 |
|
| 7,390,000 |
|
| 504,000 |
| ||||
EBITDA |
| 5,378,000 |
|
| 3,449,000 |
|
| 1,905,000 |
|
| 6,921,000 |
| ||||
Adjustments: | ||||||||||||||||
Stock-based compensation charges (1) | (A) |
| 1,964,000 |
|
| 844,000 |
|
| 3,193,000 |
|
| 1,472,000 |
| |||
Strategic consulting and litigation costs (2) | (B) |
| 2,800,000 |
|
| 89,000 |
|
| 9,818,000 |
|
| 860,000 |
| |||
Corporate separation payment (4) | (D) |
| 588,000 |
|
| 28,000 |
|
| 1,616,000 |
|
| (12,000 | ) | |||
Adjusted EBITDA | $ | 10,730,000 |
| $ | 4,410,000 |
| $ | 16,532,000 |
| $ | 9,241,000 |
| ||||
Adjusted EBITDA margin |
| 23.4 | % |
| 25.2 | % |
| 22.0 | % |
| 27.1 | % | ||||
(1) Stock-based compensation charges are included as follows: | ||||||||||||||||
Cost of revenues | $ | 163,000 |
| $ | 80,000 |
| $ | 267,000 |
| $ | 147,000 |
| ||||
Research and development |
| 296,000 |
|
| 112,000 |
|
| 470,000 |
|
| 203,000 |
| ||||
Selling and marketing |
| 686,000 |
|
| 230,000 |
|
| 1,118,000 |
|
| 413,000 |
| ||||
General and administrative |
| 819,000 |
|
| 422,000 |
|
| 1,338,000 |
|
| 709,000 |
| ||||
$ | 1,964,000 |
| $ | 844,000 |
| $ | 3,193,000 |
| $ | 1,472,000 |
| |||||
(2) Strategic consulting, acquisition, integration and litigation costs are included as follows: | ||||||||||||||||
Cost of revenues |
| 243,000 |
|
| - |
|
| 272,000 |
|
| 1,000 |
| ||||
Research and development |
| 164,000 |
|
| 2,000 |
|
| 335,000 |
|
| 58,000 |
| ||||
Selling and marketing |
| 341,000 |
|
| - |
|
| 742,000 |
|
| 7,000 |
| ||||
General and administrative |
| 2,052,000 |
|
| 87,000 |
|
| 8,469,000 |
|
| 794,000 |
| ||||
$ | 2,800,000 |
| $ | 89,000 |
| $ | 9,818,000 |
| $ | 860,000 |
| |||||
(3) Intangible Amortization is included as follows: | ||||||||||||||||
Cost of revenues |
| 1,893,000 |
|
| 63,000 |
|
| 2,528,000 |
|
| 140,000 |
| ||||
Research and development |
| 76,000 |
|
| 76,000 |
|
| 152,000 |
|
| 76,000 |
| ||||
Selling and marketing |
| 3,110,000 |
|
| 155,000 |
|
| 4,251,000 |
|
| 224,000 |
| ||||
$ | 5,079,000 |
| $ | 294,000 |
| $ | 6,931,000 |
| $ | 440,000 |
| |||||
(4) Corporate separation payment is included as follows: | ||||||||||||||||
Cost of revenues |
| 3,000 |
|
| 28,000 |
|
| 52,000 |
|
| 28,000 |
| ||||
Research and development |
| (25,000 | ) |
| - |
|
| 236,000 |
|
| - |
| ||||
Selling and marketing |
| 161,000 |
|
| - |
|
| 639,000 |
|
| - |
| ||||
General and administrative |
| 449,000 |
|
| - |
|
| 689,000 |
|
| (40,000 | ) | ||||
$ | 588,000 |
| $ | 28,000 |
| $ | 1,616,000 |
| $ | (12,000 | ) | |||||
(5) Net Income tax components: | ||||||||||||||||
Current tax (benefit)/expense |
| (123,000 | ) |
| (106,000 | ) |
| (167,000 | ) |
| (182,000 | ) | ||||
Deferred tax (benefit)/expense |
| (904,000 | ) |
| 780,000 |
|
| (2,008,000 | ) |
| 1,692,000 |
| ||||
$ | (1,027,000 | ) | $ | 674,000 |
| $ | (2,175,000 | ) | $ | 1,510,000 |
| |||||
This presentation includes Non-GAAP measures. Our Non-GAAP measures, including "Non-GAAP adjusted net income and net income per share excluding deferred tax expense" are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations of these measures, see Notes to Reconciliation of GAAP to Non-GAAP Financial Measures on the next page.
ZIX CORPORATION | ||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES OUTLOOK | ||||||||||||||||
LOW |
| HIGH |
| LOW |
| HIGH | ||||||||||
Three Months Ended |
| Three Months Ended |
| Twelve Months Ended |
| Twelve Months Ended | ||||||||||
September 30, |
| September 30, |
| December 31, |
| December 31, | ||||||||||
2019 |
| 2019 |
| 2019 |
| 2019 | ||||||||||
Revenue: | ||||||||||||||||
GAAP revenue | $ | 47,000,000 |
| $ | 47,500,000 |
| $ | 170,000,000 |
| $ | 172,000,000 |
| ||||
Diluted net income per common share: | ||||||||||||||||
GAAP net income | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.24 | ) | $ | (0.21 | ) | ||||
Stock-based compensation charges | $ | 0.04 |
| $ | 0.04 |
| $ | 0.13 |
| $ | 0.12 |
| ||||
Strategic consulting, acquisition and litigation costs | $ | 0.02 |
| $ | 0.01 |
| $ | 0.23 |
| $ | 0.22 |
| ||||
Intangible Amortization | $ | 0.10 |
| $ | 0.10 |
| $ | 0.34 |
| $ | 0.34 |
| ||||
Corporate separation payment | $ | 0.01 |
| $ | 0.00 |
| $ | 0.04 |
| $ | 0.03 |
| ||||
Non-GAAP adjusted net income per share | $ | 0.13 |
| $ | 0.14 |
| $ | 0.49 |
| $ | 0.51 |
| ||||
Deferred tax (benefit) expense | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.05 | ) | $ | (0.04 | ) | ||||
Non-GAAP adjusted net income per share excluding deferred tax (benefit) expense | $ | 0.12 |
| $ | 0.14 |
| $ | 0.44 |
| $ | 0.46 |
| ||||
Deemed dividends per share impact to Non-GAAP adjusted net income | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.19 | ) | $ | (0.19 | ) | ||||
Adjusted Net loss per share attributable to common stockholders | $ | 0.09 |
| $ | 0.10 |
| $ | 0.25 |
| $ | 0.28 |
| ||||
Shares used to compute Non-GAAP adjusted net income per share - diluted |
| 53,279,000 |
|
| 53,279,000 |
|
| 53,138,000 |
|
| 53,138,000 |
| ||||
This presentation includes Non-GAAP measures. Our Non-GAAP measures, including "Non-GAAP adjusted net income per share excluding deferred tax expense" are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations of these measures, see Notes to Reconciliation of GAAP to Non-GAAP Financial Measures on the next page.
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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