Zix Corporation's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Zix Corporation (ZIXI)

Q2 2012 Earnings Call

July 24, 2012 05:00 PM ET

Executives

Geoff Bibby – VP, Corporate Marketing

Rick Spurr – CEO, Chairman & COO

Mike English – CFO

Analysts

Mike Malouf – Craig-Hallum Capital Group

Noel Atkinson – LOM

Presentation

Operator

Good day ladies and gentlemen and welcome to the second quarter 2012 Zix Corporation's earning conference call. My name is Kim and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct the question-and-answer session at the end of today's conference. (Operator instructions) I would now like to turn the call over to your host for today, Mr. Geoff Bibby. Please proceed.

Geoff Bibby

Thank you Kim. Good afternoon. As Kim mentioned, my name is Geoff Bibby. I am Vice President of Corporate Marketing for Zix Corporation. Thank you for joining our 2012 Q2 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. Then 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, new products 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 adjusting items to the most directly comparable GAAP financial measures.

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

Rick Spurr

Thanks Geoff. Good afternoon everyone and thank you for joining us today. I am pleased to announce that during the second quarter, we delivered the best financial results in our company's history. These results included strong new first year orders, which reached a record $2.5 million, up 46% sequentially from 1.7 million in the preceding quarter and up 22% from 2 million in the second quarter of last year. While our second quarter tends to be our strongest, we believe this significant increase in orders goes beyond seasonal trends and reflects the broad based increase in demand for email encryption. We are seeing more inbound enquiries, up 66% over last year. More activity from prospects buying email encryption for the first time and more opportunities to replace outdated or weak competitive solutions.

The strong new order results in Q2 also reflects our increased number of mid-market channel partners which we grew by 80% over the last 18 months. We now have 191 combined managed security service providers and value added resellers compared to 106 at the end of 2010. This increased command also highlights what we talked about over the past few quarters that buyers have become better educated and are now more discriminating when it comes to selecting an email encryption solution. They now understand the robust capabilities and ease of use design features that are required for success and are demanding a more sophisticated solution like Zix Corp. prospective customers are starting to make buying decisions based on the feature set, quality and effectiveness of the solution they intend to implement including automatic policy based encryption, ease of use through transparency, strong analytics and reporting capabilities and best in class mobility support. This trend has and will continue to benefit Zix because of the quality and maturity of our solutions.

We’ve been focused on this market segment for more than 10 years. We are far away the leader in the market and continue to enhance the feature set, reliability, ease of use and the overall effectiveness of our solution.

Let's get back to the Q2 numbers. From a top lying perspective, we recorded revenue of $10.3 million which was up 9.7% when compared to the $9.4 million we reported in the second quarter of last year. We also had record total bookings for the second quarter, a $13.6 million up 50% sequentially from $9.1 million in the preceding quarter and up 8.6% from $12.5 million in the second quarter of last year.

Our record backlog at the end of second quarter of 2012 is very strong at $55.5 million up 6% both sequentially and year-over-year. We recorded our 10th consecutive quarter of GAAP profitability achieving GAAP net income of $2.6 million. On a fully diluted share basis, GAAP profitability was $0.04 per share. We also exceeded our non-GAAP adjusted net income guidance for the quarter, achieving non-GAAP adjusted net income of $3.1 million, up 12.8% over the $2.7 million reported in the second quarter of last year. Non-GAAP net income for the second quarter on a fully diluted per share basis was $0.05 per share exceeding our guidance of $0.04 per share.

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