Zix CEO Discusses Q3 2010 Results - Earnings Call Transcript

Zix CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Zix Corporation (

ZIXI

)

Q3 2010 Earnings Call Transcript

October 25, 2010 5:00 pm ET

Executives

Geoff Bibby – VP, Corporate Marketing

Rick Spurr – Chairman, CEO and COO

Mike English – Chief Accounting Officer and Controller

Analysts

Mike Malouf – Craig-Hallum

Fred Ziegel – Blue Water Capital Markets

Jeb Terry – Aberdeen Investment

Jon Evans – Edmunds White Partners

Presentation

Operator

Compare to:
Previous Statements by ZIXI
» Zix Corporation Q2 2010 Earnings Call Transcript
» Zix Corporation Q1 2010 Earnings Call Transcript
» Zix Corporation Q4 2009 Earnings Call Transcript
» Zix Corporation Q3 2009 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to Q3 2010 Zix Corporation Earnings Conference Call. My name is Peggy, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to host for today, Mr. Geoff Bibby. Please proceed.

Geoff Bibby

Thank you, Peggy. Good afternoon. I am Vice President of Corporate Marketing for Zix Corporation. Thank you for joining our 2010 Q3 conference call. You can find our earnings press release on our investor website at investor.zixcorp.com. The earnings release contains instructions for accessing and recording of this call.

Our Chairman and Chief Executive Officer, Rick Spurr will provide an overview of the company's performance in the quarter, and then our Controller, Mike English, will give you details of our financial results. Later in the call they will answer questions from analyst and institutional investors. Listeners can also submit questions during the call to our investor relations' mail box at invest@zixcorp.com.

Rick and Mike will provide forward-looking statement on matters such as forecast of revenues, earnings, operating margins, and cash flow, projections of our contracts, or business, and comments on trend information.

The company undertakes no obligation to publicly update or revise any forward-looking statements. Forward-looking statements are subject to risks that could cause actual results to differ materially from our expectations. The risk factors section of the company's most recent Form 10-K filing with the SEC gives examples of those risks.

Rick and Mike will refer to various non-GAAP financial measures such as adjusted gross profit, adjusted operating expenses, adjusted earnings, and adjusted EBITDA. You can find in our earnings press release and on our website detailed explanations of our non-GAAP financial measures along with reconciliations of our adjusting items to the most directly comparable GAAP financial measures.

Now, I'm very pleased to turn the call over to Rick Spurr. Rick.

Rick Spurr

Thank you, Geoff. Good afternoon and thank you for joining Zix Corporation's third quarter conference call. I am pleased to report that we continued to deliver strong results again in Q3, where we set several Zix Corp financial records. These records including all time highs in revenues, adjusted EBITDA, adjusted earnings per share and bookings backlog are the result of our successful subscription model.

There are two key elements to what I just said. First, our core Email Encryption business uses a subscription model. The key benefit of the subscription model is recurring revenue recognized ratably over the service period. Recurring revenue means that we have revenue coming in every quarter based on our past efforts, so we don’t have to struggle every quarter to achieve the targeted result.

In fact, at the beginning of each quarter we already have in hand in our backlog about 90% of our projected revenue for the quarter. The subscription model therefore means that Zix Corp has a very dependable revenue stream and a highly predictable business. Recognized ratably means we amortize our subscription revenue monthly over the life of our service contracts. That ratable amortization means that Zix Corp should not experience large swings in revenue, because the impact of new contract revenue in any quarter will be relatively small compared with subscription revenue from our existing contracts. So, Zix Corp’s subscription model allows us to deliver revenue results that are both predictable and stable.

I said our ability to deliver yet another quarter of record performance was the result of our successful subscription model. The second key element in that phrase successful speaks to our ability to add new sales, while maintaining high renewal rates on the existing base. Zix Corp has delivered strong sales growth over the past several quarters, despite a very slow economy. Our year-to-date orders for the nine months ending September 2010 are 59% ahead of the prior year period.

The $6.5 million of new first-year orders so far this year is more than our total new first-year orders for all of 2009, and as a reminder that 2009 total included our all-time record for new first-year orders in Q4. So we are seeing very solid sales performance thus far in 2010. We saw that very solid sales performance even in the third quarter this year. The third quarter has traditionally been our weakest quarter for Email Encryption sales, in large part due to the general slowdown of business during the summer.

We were therefore particularly pleased to report 2.2 million in new first year orders for Q3, which represents the strongest third quarter in the company’s history, and among the best sales performance we have seen in any quarter in our history. That success is driven by strong performance across our three core verticals, health care, finance and government. This broad-based demand results from general heightened awareness of the need for Email Encryption as part of an overall IT security strategy, plus the customers’ recognition of our differentiated, world-class service offering.

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