Zix Corporation CEO Discusses Q1 2012 Results - Earnings Call Transcript

Zix Corporation (ZIXI)

Q1 2012 Earnings Call

April 24, 2012 5:00 EST

Executives

Geoff Bibby – VP Corporate Marketing

Rick Spurr – CEO, Chairman & COO

Mike English – CFO

Analysts

Mike Malouf – Craig-Hallum

Ian Kell - Northland

Presentation

Operator

Good day, ladies and gentlemen and welcome to the First Quarter 2012 Zix Corporation Earnings Conference Call. My name is Melanie and I'll be your coordinator today. (Operator Instructions) I would now like to turn the call over to Mr. Geoff Bibby, Vice President Corporate Marketing. Please proceed.

Geoff Bibby

Thank you, Melanie. Thank you for joining our 2012 Q1 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 our CFO, Mike English, will give you details of our financial results.

Later in the call they will answer questions from analysts and 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.

Rick Spurr

Thanks, Geoff. Good afternoon, everyone, and thank you for joining us today to discuss Zix Corporation's first quarter financial results. I am pleased to report another very solid quarter for the company. From a top line perspective, we achieved record revenue in the first quarter of $10.3 million, which was up 11% over the first quarter of last year and surpassed our revenue guidance for the quarter of $10 million to $10.1 million.

We also, for the quarter, exceeded our guidance for non-GAAP net income per fully diluted share. Non-GAAP net income for the first quarter was $2.9 million, up 13% over $2.5 million in the first quarter of last year. Non-GAAP net income for the first quarter, expressed on a fully diluted per share basis of $0.04 per share, was up 25%. This per-share increase is not evident due to rounding. The 25% increase is a function of both the non-GAAP net income increase and the reduced number of outstanding shares due to our share repurchases.

New first year orders for the quarter grew 14% to $1.7 million, compared to $1.5 million in the first quarter of last year. Later in the call, I will go into more detail on the breakdown of the new first year orders and some positive changes in their makeup, including a very strong performance from our large OEM partners.

Total bookings for the first quarter came in at $9.1 million, up slightly over the first quarter of last year, and our backlog at the end of the first quarter of 2012 remained healthy at $52.3 million. We continued our consecutive quarterly string of GAAP profitability, achieving GAAP net income of $2.4 million.

On a fully diluted share basis, GAAP profitability was $0.04 per share, as compared with $0.03 per share in 2011, an increase of 11% over the first quarter of last year. This represents our ninth consecutive quarter of GAAP profitability. Our business continued to generate strong cash flow, with $2.5 million in cash flow from operations during the quarter. We ended the quarter with cash balance of $18 million, which was down $2.7 million from our year-end cash position of $20.7 million. The decline in cash was directly attributable to share repurchases during the quarter as part of the stock buyback plan we have in place. Mike English, our CFO, will provide more details on the buyback later in the call.

As we've noted before, our healthy balance sheet and the strong cash flow we generate allow us to continue to invest in our growing business while also driving value to our shareholders through a share repurchase program. As I noted on our last conference call, we believe 2012 will be a very strong year for the company as momentum begins to build.

Looking at the competition of our new first-year orders for the first quarter, I am pleased to report a significant increase coming from our large OEM partners. In fact, for the first quarter, our OEM partners represented the highest new first-year order contribution in the history of our company, and we see this positive momentum continuing to build.

Google was up 49% over the first quarter of last year, and Symantec increased 115% over last year. These very strong growth rates reflect the increased activity in the marketplace for email encryption, strengthening field-level relationships between our sales teams and theirs, and the partners' growing capability and confidence in selling Zix Corp's services. We continue to work diligently with these partners to continue this sales momentum, and also to attempt to integrate our products even further, to enhance our joint competitiveness in the marketplace.

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