Zix Corporation (NASDAQ:ZIXI) Q3 2018 Earnings Conference Call Transcript

Oct 23, 2018 • 05:00 pm ET

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Zix Corporation (NASDAQ:ZIXI) Q3 2018 Earnings Conference Call Transcript

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Presentation
Executive
David Wagner

which again made up more than 25% of our New First Year Orders for the quarter. We are encouraged that the contribution from new services continues to trend higher as the quarters progress. Attaching additional cloud based email security services to our existing customers is key to our strategy of capturing a larger share of our expanded addressable market.

This quarter's results indicate that we are making real progress toward realizing that goal. New First Year Orders are climbing higher, our tax rates are improving and retention is stabilizing. We are benefiting from positioning our products to support the direction, our customers are heading. Our customers are migrating to the cloud, strengthening their security solutions and consolidating vendors. We're seeing stronger uptake of our new solutions by new customers and that's adding onto our attach rate success with existing customers.

In fact, all five of our top five new customers in the quarter purchased ZixProtect. We expect these positive company and market dynamics to continue. We will be building on this progress by investing further in our cloud-based platform by leveraging our strong customer base through cross-sell and up-sell opportunities and by expanding the momentum of our hosted and bundled solutions for protecting business communications.

Now I will turn the call over to our CFO, Dave Rockvam to provide more details on the financials for the quarter. Dave?

Executive
David Rockvam

Thank you, Dave, and good afternoon, everyone. As Dave mentioned, Q3 was another solid quarter for Zix. Our strong, New First Year Orders of $2.6 million were driven by the solid growth of our hosted offerings and bundles and were up 24% year-over-year. We also experienced another robust quarter with total orders, which were up 33% year-over-year. These orders drove our higher backlog and deferred revenue as we successfully moved customers to longer term contracts and generated more transactions with our bundles.

Our performance for Q3 helped us achieve our 30% adjusted EBITDA margin target, and we generated another quarter of solid cash flow, ending the quarter with $24 million in cash. Altogether, the positive results and execution of our business initiatives enabled us to increase the mid-point of our revenue and GAAP earnings per share guidance for 2018 as well as our non-GAAP adjusted earnings per share guidance for the year.

Turning now to our financial numbers in more detail. As I mentioned earlier, our New First Year Orders for the quarter increased 24% to $2.6 million compared to $2.1 million in the same quarter last year. The key drivers for this success were the increasing market adoption of our advanced threat protection, archiving and hosted email encryption offerings, along with strong cross-sell and up-sell activity. In fact, with this quarter's New First Year Orders we have a now surpassed 1 million encryption users on our hosted cloud offerings. This was up 142% from when we started this journey in Q1 2016, thus demonstrating the continued customer momentum we're experiencing with our cloud based encryption offerings.

New First Year Orders were