Zix Reports Second Quarter 2018 Financial Results

July 31, 2018

DALLAS--(BUSINESS WIRE)--Jul 31, 2018-- (Zix) (NASDAQ: ZIXI), a leader in email security, today announced financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Financial Highlights (results compared to the same year-ago quarter)

Revenue increased 7% to a record $17.5 million Annual contract value (ACV) increased 13% to a record $74.0 million New first year orders increased 27% to a record $3.3 million Total orders increased 39% to a record $21.9 million GAAP net income increased 62% to $1.8 million GAAP fully diluted earnings per share increased 65% to $0.03 Cash flow from operations increased 7% to $3.4 million Non-GAAP fully diluted earnings per share increased 14% to $0.07 Adjusted EBITDA increased 3% to $4.3 million The company ended the quarter with $17.7 million in cash and no debt

Management Commentary

“With new records established virtually across the board, Q2 2018 represented a standout quarter for the company,” said David Wagner, Zix’s Chief Executive Officer. “Nearly all of our key metrics, including revenue, ACV, new first year orders and total orders reached all-time highs, driven by the strong performance of our enterprise and corporate & middle-market sales teams. Our strategy of expanding our cloud-based offerings continues to gain traction, particularly with ZixProtect and ZixArchive. Collectively, our advanced threat protection and unified archiving solutions made up 25% of our total new first year orders during the quarter, an increase of 65% from Q1 2018. Our gold standard email encryption product also saw solid year-over-year growth in new first year orders, increasing 10%, driven by a 77% increase in the number of hosted customers compared to Q2 2017.”

Zix’s Chief Financial Officer Dave Rockvam added: “The continued growth of our hosted email encryption offering, the success of our email protection bundles and disciplined cost management enabled us to yet again achieve both our top and bottom line guidance for the quarter. Revenue of $17.5 million represented 7% year-over-year growth and a new record for the company, as we continued to meet the increasing email protection needs of our customers. This is perhaps best reflected by our record new first year orders of $3.3 million, which were up 27% year-over-year, driven by strong attach rates into our installed base which delivered 56% of our new first year orders for the quarter. Our backlog is also climbing, helped by the record total orders of $21.9 million we generated during the quarter, which was up 39% over the same year ago period. We also continued to execute on our balanced capital allocation strategy with the acquisition of Erado, working on our M&A pipeline and repurchasing more than $2.3 million of our common stock. Because of our strong results year-to-date and visibility into our business for the rest of the year, we are raising the midpoint of our revenue and GAAP earnings per share guidance, as well as our non-GAAP adjusted earnings per share guidance, for 2018.”

Wagner continued: “Our investments to build out our multi-tenant environments are going according to plan, and we’re making solid progress integrating unified archiving into ZixCentral. Unified archiving enables us to address protection of virtually all digital communication channels, which will further differentiate our full suite of services, increase our attach rates and enable higher customer retention. We’re executing on our strategy and gaining momentum, as we continue to assemble the right product offer, expand our sales leadership and focus our marketing presence in email protection. Overall, the record new order performance in Q2 represents a meaningful milestone in our journey and demonstrates that we’re executing on the right strategy.”

Second Quarter 2018 Operational Highlights

Increased the Zix customer base to more than 20,700 customers with the acquisition of Erado A bank customer with 2,000 users expanded its Zix services by adding Erado Unified Information Archiving, highlighting the solution’s strength and potential growth for add-on opportunities within the Zix customer base Strengthened the Zix managed service provider program by expanding offerings to include email threat protection and email archiving and providing additional partner value with flexible billing, rapid deployment and a centralized management console for administration of Zix solutions Repurchased 500,000 shares of its common stock at an average purchase price of $4.61 per share

Second Quarter 2018 Corporate Financial Summary and Other Operational Metrics

Fiscal Six Months 2018 Corporate Financial Summary and Other Operational Metrics

Financial Outlook

For third quarter 2018, the company forecasts revenue to range between $17.7 million and $17.8 million. The company forecasts fully diluted GAAP earnings per share to be in a range of $0.03 and $0.04 and fully diluted non-GAAP adjusted earnings per share to be $0.08 for the third quarter 2018.

For fiscal year 2018, the company is increasing the midpoint of its revenue guidance range to between $69.5 million to $70.5 million, representing an increase of 6% to 7% compared to fiscal year 2017. The company forecasts fully diluted GAAP earnings per share to be between $0.15 and $0.17 and increases its fully diluted non-GAAP adjusted earnings per share guidance to $0.31 for fiscal year 2018.

Conference Call Information

Management will discuss these financial results and outlook on a conference call today (July 31, 2018) 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 7272336. If you have any difficulty connecting with the conference call, please contact Liolios Group 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 7272336. 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 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 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 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 but not limited to risks or uncertainties related to market acceptance of both existing and new Zix solutions, changing market dynamics resulting from technological change and innovation, 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 financial and other results can be found in the risk factors section of Zix’s most recent annual report on Form 10-K filed with the Securities and Exchange Commission.

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