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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 0-17995

 

ZIX CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Texas

 

75-2216818

(State of Incorporation)

 

(I.R.S. Employer Identification Number)

 

2711 North Haskell Avenue

Suite 2300, LB 36

Dallas, Texas 75204-2960

(Address of Principal Executive Offices)

(214) 370-2000

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit  such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

Class

 

Outstanding at November 5, 2020

Common Stock, par value $0.01 per share

 

56,991,250

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of Each Class

 

Trading Symbols(s)

 

Name of Exchange on Which Registered

Common Stock, par value $0.01 per share

 

ZIXI

 

NASDAQ Global Market

 


 


 

INDEX

 

 

 

 

 

Page

Number

PART I — FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2020 (unaudited) and December 31, 2019

 

3

 

 

Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2020  and 2019

 

4

 

 

Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the three months ended March 31, 2020 and 2019, June 30, 2020 and 2019, and September 30, 2020 and 2019, respectively

 

5

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2020 and 2019

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

29

Item 4.

 

Controls and Procedures

 

29

PART II — OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

30

Item 1A.

 

Risk Factors

 

30

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

Item 3.

 

Defaults Upon Senior Securities

 

30

Item 4.

 

Mine Safety Disclosures

 

30

Item 5.

 

Other Information

 

30

Item 6.

 

Exhibits

 

31

 

2


 

ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands, except share and par value data)

 

September 30,

2020

 

 

December 31,

2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,662

 

 

$

13,349

 

Receivables, net

 

 

15,328

 

 

 

10,081

 

Prepaid and other current assets

 

 

3,966

 

 

 

4,984

 

Total current assets

 

 

42,956

 

 

 

28,414

 

Property and equipment, net

 

 

7,852

 

 

 

8,591

 

Operating lease assets

 

 

8,332

 

 

 

10,128

 

Intangible assets, net

 

 

137,367

 

 

 

145,876

 

Goodwill

 

 

170,930

 

 

 

171,209

 

Deferred tax assets

 

 

36,689

 

 

 

36,535

 

Deferred costs and other assets

 

 

12,461

 

 

 

11,968

 

Total assets

 

$

416,587

 

 

$

412,721

 

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

17,717

 

 

$

14,400

 

Accrued expenses

 

 

11,473

 

 

 

13,732

 

Deferred revenue

 

 

41,095

 

 

 

40,757

 

Current portion of long-term debt

 

 

1,850

 

 

 

1,850

 

Operating lease liabilities, current

 

 

2,195

 

 

 

2,947

 

Finance lease liabilities, current

 

 

780

 

 

 

1,338

 

Total current liabilities

 

 

75,110

 

 

 

75,024

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

 

1,263

 

 

 

2,524

 

Noncurrent operating lease liabilities

 

 

7,113

 

 

 

8,389

 

Noncurrent finance lease liabilities

 

 

188

 

 

 

716

 

Long-term debt

 

 

183,830

 

 

 

178,250

 

Total long-term liabilities

 

 

192,394

 

 

 

189,879

 

Total liabilities

 

 

267,504

 

 

 

264,903

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $1 par value; 100,206 shares designated, issued and outstanding in 2020 and in 2019

 

 

113,241

 

 

 

106,527

 

Total preferred stock

 

 

113,241

 

 

 

106,527

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $1 par value, 10,000,000 shares authorized; none issued and outstanding

 

 

 

 

 

 

Common stock, $0.01 par value, 175,000,000 shares authorized; 85,127,484 issued and 56,992,265 outstanding in 2020 and 83,393,514 issued and 55,640,397 outstanding in 2019

 

 

782

 

 

 

780

 

Additional paid-in capital

 

 

399,285

 

 

 

391,605

 

Treasury stock, at cost; 28,135,219 common shares in 2020 and 27,753,117 common shares in 2019

 

 

(113,015

)

 

 

(110,298

)

Accumulated deficit

 

 

(251,291

)

 

 

(240,995

)

Accumulated other comprehensive income (loss)

 

 

81

 

 

 

199

 

Total stockholders’ equity

 

 

35,842

 

 

 

41,291

 

Total liabilities, preferred stock and stockholders’ equity

 

$

416,587

 

 

$

412,721

 

 

See notes to condensed consolidated financial statements.

3


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except share and per share data)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

54,840

 

 

$

47,833

 

 

$

160,611

 

 

$

123,049

 

Cost of revenue

 

 

27,928

 

 

 

21,422

 

 

 

82,265

 

 

 

52,865

 

Gross margin

 

 

26,912

 

 

 

26,411

 

 

 

78,346

 

 

 

70,184

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,720

 

 

 

5,590

 

 

 

16,926

 

 

 

15,048

 

Selling, general and administrative

 

 

18,813

 

 

 

19,592

 

 

 

58,058

 

 

 

61,729

 

Total operating expenses

 

 

24,533

 

 

 

25,182

 

 

 

74,984

 

 

 

76,777

 

Operating income (loss)

 

 

2,379

 

 

 

1,229

 

 

 

3,362

 

 

 

(6,593

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income

 

 

127

 

 

 

14

 

 

 

104

 

 

 

115

 

Interest expense

 

 

(2,035

)

 

 

(2,973

)

 

 

(7,190

)

 

 

(7,398

)

Total other expense

 

 

(1,908

)

 

 

(2,959

)

 

 

(7,086

)

 

 

(7,283

)

Income (loss) before income taxes

 

 

471

 

 

 

(1,730

)

 

 

(3,724

)

 

 

(13,876

)

Income tax (expense) benefit

 

 

(1,196

)

 

 

133

 

 

 

244

 

 

 

2,308

 

Net loss

 

$

(725

)

 

$

(1,597

)

 

$

(3,480

)

 

$

(11,568

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed and accrued dividends on preferred stock

 

 

2,267

 

 

 

2,090

 

 

 

6,714

 

 

 

7,894

 

Net loss attributable to common stockholders

 

$

(2,992

)

 

$

(3,687

)

 

$

(10,194

)

 

$

(19,462

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per share attributable to common stockholders

 

$

(0.05

)

 

$

(0.07

)

 

$

(0.19

)

 

$

(0.37

)

Diluted loss per common share attributable to common stockholders

 

$

(0.05

)

 

$

(0.07

)

 

$

(0.19

)

 

$

(0.37

)

Basic weighted average common shares outstanding

 

 

54,999,114

 

 

 

53,148,078

 

 

 

53,933,721

 

 

 

52,965,163

 

Diluted weighted average common shares outstanding

 

 

54,999,114

 

 

 

53,148,078

 

 

 

53,933,721

 

 

 

52,965,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

493

 

 

 

35

 

 

 

(118

)

 

 

(52

)

Comprehensive loss

 

$

(232

)

 

$

(1,562

)

 

$

(3,598

)

 

$

(11,620

)

 

See notes to condensed consolidated financial statements

4


 

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

Preferred Stock and Stockholders’ Equity

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Treasury

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders

 

(In thousands, except shares)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balances, December 31, 2019, as reported

 

 

100,206

 

 

$

106,527

 

 

 

83,393,514

 

 

$

780

 

 

$

391,605

 

 

$

(110,298

)

 

$

(240,995

)

 

$

199

 

 

$

41,291

 

Cumulative effect adjustment from changes in accounting standard (Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(103

)

 

 

 

 

 

 

(103

)

Balances, January 1, 2020

 

 

100,206

 

 

 

106,527

 

 

 

83,393,514

 

 

 

780

 

 

 

391,605

 

 

 

(110,298

)

 

 

(241,098

)

 

 

199

 

 

 

41,188

 

Accretion of beneficial conversion feature of Series A Preferred Shares (Participating)

 

 

 

 

 

48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(48

)

 

 

 

 

 

(48

)

Accrued dividend on Series A preferred stock

 

 

 

 

 

2,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,181

)

 

 

 

 

 

(2,181

)

Net issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

46,875

 

 

 

1

 

 

 

116

 

 

 

 

 

 

 

 

 

 

 

 

117

 

Net issuance of common stock upon vesting of restricted stock units

 

 

 

 

 

 

 

 

30,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of common stock upon vesting of performance stock units

 

 

 

 

 

 

 

 

16,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted common stock

 

 

 

 

 

 

 

 

1,062,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted performance common stock

 

 

 

 

 

 

 

 

404,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,989

 

 

 

(1,785

)

 

 

 

 

 

 

 

 

204

 

Adjustment from foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(905

)

 

 

(905

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(853

)

 

 

 

 

 

(853

)

Balances, March 31, 2020

 

 

100,206

 

 

$

108,756

 

 

 

84,953,964

 

 

$

781

 

 

$

393,710

 

 

$

(112,083

)

 

$

(244,180

)

 

$

(706

)

 

$

37,522

 

Accretion of beneficial conversion feature of Series A Preferred Shares (Participating)

 

 

 

 

 

47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47

)

 

 

 

 

 

(47

)

Accrued dividend on Series A preferred stock

 

 

 

 

 

2,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,171

)

 

 

 

 

 

(2,171

)

Net issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

67,500

 

 

 

1

 

 

 

216

 

 

 

 

 

 

 

 

 

 

 

 

217

 

Net issuance of common stock upon vesting of restricted stock units

 

 

 

 

 

 

 

 

75,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of common stock upon vesting of performance stock units

 

 

 

 

 

 

 

 

32,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted common stock

 

 

 

 

 

 

 

 

6,590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net issuance of restricted performance common stock

 

 

 

 

 

 

 

 

(26,666

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,251

 

 

 

(797

)

 

 

 

 

 

 

 

 

2,454

 

Adjustment from foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

294

 

 

 

294

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,902

)

 

 

 

 

 

(1,902

)

Balances, June 30, 2020

 

 

100,206

 

 

$

110,974

 

 

 

85,109,867

 

 

$

782

 

 

$

397,177

 

 

$

(112,880

)

 

$

(248,299

)

 

$

(412

)

 

$

36,368

 

Accretion of beneficial conversion feature of Series A Preferred Shares (Participating)

 

 

 

 

 

48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(48

)

 

 

 

 

 

(48

)

Accrued dividend on Series A preferred stock

 

 

 

 

 

2,219