Zix's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Zix Corporation ( ZIXI)

Q4 2011 Earnings Call

February 21, 2012 05:00 p.m. ET


Geoff Bibby – VP Corporate Marketing

Rick Spurr – CEO, Chairman & COO

Mike English – CFO


Mike Malouf – Craig-Hallum Capital Group

Frederick Ziegel – Topeka Capital Markets

Jeb Terry – Aberdeen Investment Management



Good day, ladies and gentlemen, and welcome to fourth quarter 2011 Zix Corporation Earnings Conference Call. My name is Amecia [ph] and I’ll be your operator for today. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the call over to Mr. Geoff Bibby, Vice President of Corporate Marketing. Please proceed.

Geoff Bibby

Thank you Amecia, and thank you for joining our 2011 Q4 and fully year conference call. You can find our earnings press release on our investor website at investor.zixcorp.com. The earnings release contains instructions for accessing a 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 for the full year, and our CFO Mike English will give you details of our financial results.

Later in the call they will answer questions from our institutional investors. Listeners can also submit questions during the call to our investor relations mailbox at invest@zixcorp.com.

Rick and Mike will provide forward-looking statements 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 investor website, detailed explanations of our non-GAAP financial measures along with reconciliations of our adjusted items to the most directly comparable GAAP financial measures.

Now I am pleased to turn the call over to Rick Spurr.

Rick Spurr

Thank you Geoff. Good afternoon everyone and thank you for joining us today to discuss our 2011 fourth quarter and yearend results. I am pleased to report record financial results for the fourth quarter and full year. From a top line perspective we achieved record revenue in the fourth quarter of $9.9 million, which was up 12% over the fourth quarter of last year and was

on the top end of our guidance range $9.7 million to $9.9 million. We also generated record full year revenue of $38.1 million up 15% from $33.1 million in 2010.

We achieved record bottom-line results, including adjusted net income in the fourth quarter of $2.9 million, up 17% year-over-year, and adjusted net income for 2011 of $10.9 million, up 31% over 2010. These strong bottom-line results highlight the significant leverage in our business model.

We increased full year revenue by $5.1 million and delivered $2.6 million of that to our bottom line. It’s important to note that the 2010 adjusted net income included over $1 million from the PocketScript business, which makes this $2.6 million increase even more impressive.

We continue to grow the backlog which at yearend was a solid $53.7 million, up 8% over the fourth quarter of 2010. New first year orders in the fourth quarter were $1.9 million, up sequentially from $1.6 million in the third quarter and down slightly from $2.1 million in the fourth quarter of 2010.

For the year, new first year orders were $7.1 million compared to the $8.7 million for 2010. The $7.1 million in the new first year orders for 2011 is up 9% when compared to 2009, but is down when compared to the record year we had in 2010.

The slowdown in new first-year orders in 2011 when compared to 2010 is largely attributable to two key factors. First, in the first quarter of 2011, our new sales were affected by some one-time events; a reorganization in our corporate sales force and then tsunami in Japan to name two. Secondly, customers were slow to pull the trigger on news orders during much of 2011 due to the overall uncertainty in the economy.

As we entered 2012, we believe these factors and headwinds we encountered in 2011 are now behind us. We have stability in our sales force, the economy has certainly turned the corner, our team of partners, OEMs, WARs and MSPs is as solid as ever. Our sales pipeline and lead flow is strong and we are encouraged by our opportunities for growth going forward. Our technology is as strong as ever too.

We’ve implemented key technology platform upgrades designed to make our solutions easier and easier to use. Current data available in the market estimates that there are approximately 120 million business email users in the United States with only about 12 million or 10% of those heading some sort of email encryption. So the penetration is relatively low, and the upside is significant.

We believe that the key to increased adoption in the market place is directly related to ease of use. So by expanding our leadership in this area, ease of use, we expect the impact growth in two ways. First of all, greater usage and adoption overall growing the entire market, and secondly, further differentiating our solution to garner greater market share.

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