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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Q & A
Operator
Operator

(Operator Instructions) Mike Malouf, Craig-Hallum.

Analyst
Mike Malouf

I wondered if you can flesh out a little bit more on the Erado acquisition. It sounds like that's -- with this launch in Q1, that it could shape up to be a pretty meaningful impact to growth over the next few years. I'm just wondering if you could kind of size the market for us and give us a sense of why your salespeople are so excited?

Executive
David Wagner

So the archiving market, as we look at it is $800 million to $900 million. The part of the archiving market that's really focused on compliance. Cross channel's a little bit smaller than that, but growing faster. The first great opportunity here is rotation of archiving from on-premise to cloud. Our perception is that the email boxes are the first thing to move and advanced threat protection attached to those mailboxes has been a leader to the cloud and that archiving is a big opportunity in behind that.

The second aspect of the Erado solution that we really like is that multi-channel capability, the ability to archive virtually any digital communication channel, and the way that we reformat the data to look like email when the reviewer or the searcher of the in-depth content is using the archive. So those two things are highly differentiated. The attach rates, we think, will be good. Vendors don't compete their archiving as often as the threat protection, what could -- vendors, I mean customers. So it will probably be a little bit slower ramp, but it's a higher priced offering and we feel really good about the attach rate opportunity from that acquisition.

Analyst
Mike Malouf

And then, if you did mention and I missed it, can you talk a little bit about international? How's that going for you? And as you look into 2019, what's the opportunity there?

Executive
David Wagner

Yeah, you didn't miss it, Mike. We didn't bring it up, because we did not have a real meaningful contribution of international in this quarter. We had a nice win in the quarter ended June. We've got a nice pipeline for the fourth quarter. So we continue to make measured progress with our major investment in international and it's kind of progressing as planned.

Analyst
Mike Malouf

And then one final question. As you move into 2019, I know that you gave guidance of gross profit margins to stay around that 80%. But as you get that deferred revenue kind of following off for the acquisition, should we see those go back up a little bit over the next several quarters?

Executive
David Wagner

As we get into 2019, we might see it tick up a little bit. Remember, what we've talked about also in both of those is, on the advanced threat protection and on the archiving, it carries a little bit higher cost of sales. The support and threat analysts for the advanced threat protection and then archiving itself carries a little heavier expense from the standpoint of your, actually archiving that data and have to put it into