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Zix Corporation Hits High End of Financial Guidance as Company Announces Third Quarter 2009 Financial Results
Date:10/27/2009

DALLAS, Oct. 27 /PRNewswire-FirstCall/ -- Zix Corporation (ZixCorp®) (Nasdaq: ZIXI), the leader in hosted services for email encryption and payor-sponsored e-prescribing, today announced financial results for the third quarter ended September 30, 2009. ZixCorp recorded third quarter revenues of $7.8 million and a GAAP net loss of $0.7 million for the quarter, or $0.01 loss per share, compared with revenues of $6.7 million, and a GAAP net loss of $1.5 million, or $0.02 loss per share, in the corresponding quarter in 2008. Reporting a positive result for the first time, adjusted net income (see "Use of Non-GAAP Financial Information" below and the attached "Reconciliation of GAAP to Non-GAAP Financial Measures") was $0.8 million, or $0.01 per share, compared with an adjusted net loss of $0.8 million, or $0.01 loss per share, in the corresponding period in 2008.

"I'm very pleased to report ZixCorp's first ever profits, on an adjusted basis, which is a measure that we use to evaluate the performance of the Company and make planning decisions," said Rick Spurr, Chairman and Chief Executive Officer for ZixCorp. "Record overall revenues, driven by continued strength in our Email Encryption business, reflect our successful subscription model that combines the healthy addition of new sales with a track record of high renewals in our customer base. The improvement in our renewal rate and several competitive win-backs are further indications of our strength in the marketplace with our superior Software as a Service (SaaS) solution and its management of shared public encryption keys in our ZixDirectory. This robust growth in our top-line performance on a primarily fixed cost infrastructure, combined with targeted cost-cutting actions we've undertaken recently in our e-Prescribing business, have enabled us to achieve this significant milestone of profitability. I believe ZixCorp has transitioned to a new phase in its development as a business and should thrive as it continues to deliver improved financial results. While we are making progress in our previously-announced assessment of strategic alternatives for our e-Prescribing business, we remain committed to executing our existing contracts and providing quality services to our customers, and I'm pleased to see continued strong usage of this life-saving and cost-reducing technology by our prescribers, as evidenced by the 16 percent increase in the script volume compared with the same period in 2008."

Corporate Highlights

  • Company-wide third quarter 2009 revenue of $7.8 million is up 17 percent over the comparable period in 2008, meeting the high end of previously-issued revenue guidance of $7.5 to $7.8 million
  • Cash and cash equivalents at September 30, 2009, were $12.4 million compared with $12.5 million at the end of the second quarter of 2009 and $13.2 million at December 31, 2008. Cash and cash equivalents remain below the December 31, 2008, level, primarily because of certain non-recurring cash items in the quarter and a slow-down in customer payments
  • ZixCorp welcomed the Company's founder, successful entrepreneur David P. Cook, back to its Board of Directors

Business Highlights

Email Encryption

  • Email Encryption revenue for third quarter 2009 was $6.7 million, up 20 percent when compared with the same quarter in 2008
  • New first-year orders were $1.3 million, a 12 percent increase over the same period in 2008. Total orders for the quarter were $6.5 million, up 25 percent when compared the same period of 2008
  • ZixCorp reported a contract renewal of 91 percent for the quarter
  • Through its partnership with Dell Inc., ZixCorp began providing email encryption services to customers of Dell's Email Management Services (EMS) with ZixCorp's Email Encryption Service for EMS
  • ZixCorp extended one of its anchor customer relationships by renewing its exclusive contract with Humana for the seventh year and expanding the users to 36,000
  • ZixCorp increased its footprint within the financial services sector in passing the 1,100 mark for financial institutions as customers, while the overall number of members in the ZixDirectory surpassed 18 million

e-Prescribing

  • e-Prescribing revenue for third quarter 2009 was $1.2 million, up 2 percent when compared with the same quarter in 2008
  • The Company's PocketScript business met the e-Prescribing deployment guidance of 200 to 250 for the third quarter with approximately 210 deployments
  • In the third quarter, which historically shows decreased volume with many physicians taking vacations over the summer months, ZixCorp processed over 2.3 million scripts, an increase of approximately 16 percent compared with the third quarter in 2008
  • ZixCorp continued its previously-announced review with Allen & Co. of strategic alternatives for its e-Prescribing business

Financial Highlights

Note: All gross profit and expenditure explanations below are based on adjusted non-GAAP amounts, the primary adjustments of which are non-cash stock-based compensation under SFAS 123R and non-recurring expense items- see "Use of Non-GAAP Financial Information" below and the "Reconciliation of GAAP to Non-GAAP Financial Measures" presented with attached financial statements.

Revenues by Product Third Quarter 2009

                             3 Months Ended            3-month Variance
                                 Sept. 30,               2009 vs. 2008
                            -----------------          ----------------
                            2009         2008           $            %
                            ----         ----          ---          ---
    Email Encryption     $6,685,000   $5,578,000   $1,107,000       20%
    e-Prescribing         1,150,000    1,131,000       19,000        2%
                          ---------    ---------       ------       ---
    Total revenues       $7,835,000   $6,709,000   $1,126,000       17%
                         ==========   ==========   ==========       ===

Revenues: The increase in Email Encryption revenue was due to the growth inherent in our successful subscription model with steady additions to the subscriber base coupled with a high rate of renewing existing customers. The slight increase in e-Prescribing revenue was driven by an approximate $80,000 increase in transaction and renewal fees offset by a decline in deployment and other revenue relative to 2008. The Company's order backlog (contractually bound service contracts that represent future revenue to be recognized as the services are provided) was $41.0 million on September 30, 2009.

Gross Profit: The Company recorded an adjusted gross profit of $5.8 million (74 percent of revenue) for the third quarter 2009, compared with $4.4 million or 66 percent of revenue for the same period in 2008. The adjusted gross profit contribution by business unit was $5.6 million (83 percent) from Email Encryption and $0.2 million (18 percent) from e-Prescribing. The gross profit improvement for the quarter came from strong revenue growth in Email Encryption on a largely fixed cost structure and a more beneficial mix of high-margin revenue from transactions compared with lower-margin deployment revenue, and the corresponding lower cost of sales, in the e-Prescribing business.

R&D and SG&A Expenditures: On an adjusted basis, the Company's R&D expenses were $1.6 million and $1.5 million in the third quarter of 2009 and 2008, respectively. SG&A expenses on an adjusted basis were $3.4 million and $3.7 million in the third quarter of 2009 and 2008, respectively, with the decrease in 2009 driven by reduced headcount, primarily in the Company's e-Prescribing business.

Adjusted Earnings: The Company recorded adjusted net income of $0.8 million, or $0.01 per share for the third quarter of 2009, compared with an adjusted net loss of $0.8 million or $0.01 loss per share for the comparable quarter in 2008. The increase in adjusted net income resulted from growth in revenue combined with the drop in cost of sales and operating expenses, specifically SG&A as noted above, compared with 2008. See the attached "Reconciliation of GAAP and Non-GAAP Financial Measures" for a reconciliation of GAAP to non-GAAP line items.

Outlook: The Company forecasts revenue for the fourth quarter to be between $7.9 and $8.1 million. Our adjusted basic earnings per share is expected to be between $0.01 and $0.02.

Third Quarter Conference Call Information

The Company will hold a conference call to discuss the Company's third quarter operating results on October 27 at 5:00 p.m. ET.

A live Webcast of the conference call will be available on the investor relations portion of ZixCorp's Web site at http://investor.zixcorp.com. Alternatively, participants can listen to the conference call by dialing 617-213-8058 or toll-free 866-578-5801 and entering access code 34628571. An audio replay of the conference will be available until November 3, 2009, by dialing 617-801-6888 or toll-free 888-286-8010, and entering the access code 38605390, and after that date via Webcast from the Company's Web site.

About Zix Corporation

Zix Corporation (ZixCorp®) is the leading provider of hosted email encryption and payor sponsored e-prescribing services. ZixCorp's email encryption services provide an easy and cost-effective way to ensure customer privacy and regulatory compliance for corporate email. ZixCorp offers the simplicity of Software as a Service with the convenience of customizable encryption policies. ZixCorp operates the largest email encryption directory in the world enabling seamless and secure communication among communities of interest. ZixCorp's directory connects over 18 million members and includes over 20 state banking regulators, over 1,100 financial institutions, over 1,000 hospitals and over 30 Blue Cross Blue Shield organizations. ZixCorp's PocketScript® e-prescribing service reduces costs and improves patient care by automating the prescription process between payers, doctors, and pharmacies. For more information, visit www.zixcorp.com.

Safe Harbor Statement for ZixCorp

The following is a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. Many of the foregoing statements by Mr. Spurr as well as the paragraph under Outlook are forward-looking statements, not a guarantee of future performance, and involve substantial risks and uncertainties. Actual results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the fact that the preliminary financial results included in this press release could be subject to change based on adjustments that are deemed appropriate by the Company during the process of finalizing its quarterly financial statements; the Company's operating losses and its PocketScript e-Prescribing service's use of cash resources; the Company's ability to achieve broad market acceptance for the Company's products and services, including the Company's ability to enter into new or expand existing sponsorship agreements for its PocketScript e-Prescribing business and the Company's ability to continue realizing acceptance of its Email Encryption business in its core markets of healthcare and financial and to achieve market acceptance of its Email Encryption business in other markets; the Company's ability to maintain existing and generate other revenue opportunities, including fees for scripts written or value added services for its payor customers from its PocketScript e-Prescribing business; the Company's ability to establish and maintain strategic and OEM relationships to gain customers and grow revenues, particularly in its Email Encryption business; the expected increase in competition in the Company's Email Encryption and e-Prescribing businesses; the Company's ability to successfully and timely introduce new Email Encryption and e-Prescribing products and services or related products and services and implement technological changes; and whether the Company will enter into a strategic transaction with respect to its e-Prescribing business and the effects of any such transaction on the Company and its stockholders. Further details pertaining to such risks and uncertainties may be found in the Company's public filings with the SEC. The Company does not intend, and undertakes no obligation, to update or revise any forward-looking statement, except as required by federal securities regulations.

Use of Non-GAAP Financial Information

Management evaluates and makes operating decisions using various performance measures. In addition to reporting financial results in accordance with GAAP, we also consider when making financial decisions, non-GAAP gross profit, operating income/(loss), net income/(loss), and earnings/(loss) per share which we refer to as "adjusted gross profit," "adjusted operating income/(loss)," "adjusted net income/(loss)," and "adjusted earnings/(loss) per share." In calculating adjusted gross profit, adjusted operating income/(loss), adjusted net income/(loss), and adjusted earnings/(loss) per share, management excludes certain items to facilitate its review of the comparability of the Company's operating performance on a period-to-period basis because such items are not, in management's review, related to the Company's ongoing operating performance.

We present adjusted gross profit, adjusted operating income/(loss), adjusted net income/(loss), and adjusted earnings/(loss) per share because we consider each to be an important supplemental measure of our performance. Management uses these non-GAAP financial measures to make operational and investment decisions, to evaluate the Company's performance, to forecast and to determine compensation. Further, management utilizes these performance measures for purposes of comparison with its business plan and individual operating budgets and allocation of resources.

We believe that these non-GAAP financial measures are useful to investors in providing greater transparency to the information used by management in its operational decision making. We believe that calculating adjusted gross profit, adjusted operating income/(loss), adjusted net income/(loss), and adjusted earnings/(loss) per share also facilitates a comparison of ZixCorp's underlying operating performance with that of other companies in our industry, which may from time to time use similar non-GAAP financial measures to supplement their GAAP results. However, non-GAAP measures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for GAAP gross profit, operating income/(loss), net income/(loss), and earnings/(loss) per share, or any other performance measure determined in accordance with GAAP. In the future, we expect to continue to incur expenses similar to certain of the non-GAAP adjustments described above and exclusion of these items in the presentation of our non-GAAP financial measures should not be construed as an inference that all of these costs are unusual, infrequent or non-recurring.

Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with our GAAP gross profit, operating income and net income. For more information, see the consolidated statements of income and the "Reconciliation of GAAP to Non-GAAP Financial Measures" contained in this press release.



                               ZIX CORPORATION
                    CONDENSED CONSOLIDATED BALANCE SHEETS


                                               September 30,
                                                   2009       December 31,
                                               (unaudited)       2008
                                               ------------   -----------
    ASSETS
    Current assets:
      Cash and cash equivalents                $12,392,000  $13,245,000
      Marketable securities                         25,000            -
      Receivables, net                             681,000      476,000
      Prepaid and other current assets           1,065,000    1,145,000
                                                 ---------    ---------
        Total current assets                    14,163,000   14,866,000
    Restricted cash                                      -       28,000
    Property and equipment, net                  2,333,000    2,236,000
    Goodwill and other assets                    2,437,000    2,227,000
                                                 ---------    ---------
        Total assets                           $18,933,000  $19,357,000
                                               ===========  ===========


    LIABILITIES AND STOCKHOLDERS' DEFICIT
    Current liabilities:
      Accounts payable and accrued expenses     $3,733,000   $2,916,000
      Deferred revenue                          14,505,000   14,960,000
      License subscription note payable            123,000            -
                                                   -------          ---
        Total current liabilities               18,361,000   17,876,000
    Long-term liabilities:
      Deferred revenue                           2,681,000    2,484,000
      License subscription note payable,
       non-current                                 218,000            -
      Deferred rent                                251,000      300,000
                                                   -------      -------
        Total long-term liabilities              3,150,000    2,784,000
                                                 ---------    ---------
        Total liabilities                       21,511,000   20,660,000
        Total stockholders' deficit             (2,578,000)  (1,303,000)
                                                ----------   ----------
        Total liabilities and stockholders'
         deficit                               $18,933,000  $19,357,000
                                               ===========  ===========



                                 ZIX CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


                               Three Months              Nine Months
                                  Ended                     Ended
                               September 30,            September 30,
                              --------------           --------------
                             2009         2008         2009         2008
                             ----         ----         ----         ----
    Revenues              $7,835,000   $6,709,000  $22,462,000  $20,866,000

    Cost of revenues       2,249,000    2,383,000    7,088,000    7,505,000
                           ---------    ---------    ---------    ---------
    Gross profit           5,586,000    4,326,000   15,374,000   13,361,000
    Operating expenses:
      Research and
       development         1,760,000    1,590,000    5,238,000    4,516,000
      Selling, general
       and administrative  4,557,000    4,232,000   14,429,000   13,656,000
                           ---------    ---------   ----------   ----------
        Total operating
         expenses          6,317,000    5,822,000   19,667,000   18,172,000
                           ---------    ---------   ----------   ----------

    Operating loss          (731,000)  (1,496,000)  (4,293,000)  (4,811,000)

    Other income, net         35,000       97,000      176,000      435,000

    Loss before
     income taxes           (696,000)  (1,399,000)  (4,117,000)  (4,376,000)
    Provision for
     income taxes             39,000     (110,000)      (7,000)    (187,000)
                              ------     --------       ------     --------

    Net loss               $(657,000) $(1,509,000) $(4,124,000) $(4,563,000)
                           =========  ===========  ===========  ===========

    Basic and diluted
     loss per
     common share             $(0.01)      $(0.02)      $(0.07)      $(0.07)
                              ======       ======       ======       ======

    Basic and diluted
     weighted average
     common shares
     outstanding          63,367,037   63,072,191   63,335,508   62,893,809
                          ==========   ==========   ==========   ==========



                          ZIX CORPORATION
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited)


                                            Nine Months Ended
                                               September 30,
                                            -----------------
                                            2009         2008
                                            ----         ----
    Operating activities:
      Net loss                        $(4,124,000) $(4,563,000)
      Non-cash items in net loss        3,489,000    3,950,000
      Changes in operating
       assets and liabilities             318,000    2,026,000
                                          -------    ---------
          Net cash (used in) provided
           by operating activities       (317,000)   1,413,000

    Investing activities:
      Purchases of
       property and equipment            (852,000)    (695,000)
      Restricted cash investments and
       marketable securities, net           3,000    1,734,000
                                            -----    ---------
          Net cash (used in) provided
           by investing activities       (849,000)   1,039,000

    Financing activities:
      Proceeds from
       exercise of stock
       options                             13,000      164,000
      Proceeds from
       exercise of warrants               339,000            -
      Payment of promissory note          (39,000)           -
                                          -------          ---
          Net cash provided by
           financing activities           313,000      164,000
                                          -------      -------

    (Decrease) increase  in
     cash and cash equivalents           (853,000)   2,616,000
    Cash and cash
     equivalents, beginning
     of period                         13,245,000   10,524,000
                                       ----------   ----------
    Cash and cash
     equivalents, end of period       $12,392,000  $13,140,000
                                      ===========  ===========



                                        ZIX CORPORATION
                     RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
                                          (Unaudited)

                               Three Months Ended September 30, 2009
                               -------------------------------------
                                  Non-Cash           Strategic
                                   Stock-      Non-   Alter-  Income
                                   based    Recurring native  Tax     Non-GAAP
                       GAAP         Comp.     Items   Review  Impact  ("Adj.")
                      Results       (A)        (B)     (C)    (D)   Net Income
                      -------       ----      -----   ------  ----   ---------
    Revenues        $7,835,000         $-                           $7,835,000

    Cost of
     revenues        2,249,000    (148,000)  (49,000)                2,052,000
                     ---------     -------    ------      ---   ---  ---------
    Gross profit     5,586,000     148,000    49,000        -     -  5,783,000
    Operating
     expenses:
      Research and
       development   1,760,000    (130,000)        -                 1,630,000
      Selling,
       general and
       adminis-
       trative       4,557,000    (850,000) (186,000) (91,000)       3,430,000
                     ---------     -------   -------   ------   ---  ---------
    Total
     operating
     expenses        6,317,000    (980,000) (186,000) (91,000)    -  5,060,000
                     ---------     -------   -------   ------   ---  ---------
    Operating
     income/
     (loss)           (731,000)  1,128,000   235,000   91,000     -    723,000

    Other
     income, net        35,000                                          35,000

    Income/
     (loss)
     before
     income
     taxes            (696,000)  1,128,000   235,000   91,000     -    758,000
    Provision
     for
     income
     taxes              39,000                                    -     39,000
                        ------     -------   -------   ------   ---     ------
    Net income/
     (loss)          $(657,000) $1,128,000  $235,000  $91,000    $-   $797,000
                     =========  ==========  ========  =======   ===   ========
    Basic net
     Income
     (loss)
     per
     common
     share              $(0.01)                                          $0.01
    Basic
     weighted
     average
     shares
     outstanding    63,367,037                                      63,367,037
                    ==========                                      ==========

    (A)  Non-cash stock-based compensation charges relating to stock option
         grants awarded to employees and third-party service providers and
         accounted for in accordance with SFAS123R, "Share-Based Payment,"
         currently within the scope of ASC 718-10.

         During the third quarter the Company converted to a new third party
         stock option system which spreads ratably the expense related to
         stock option forfeitures over each quarter of the vesting period
         compared to our legacy system that deferred the forfeitures until
         option grants were fully vested.  Although both the new and the
         legacy systems record the same expense over the life of fully vested
         stock options, the timing difference created by the two different
         systems required that we align the two systems upon conversion.  In
         the third quarter our SFAS123R expense includes a non-recurring,
         non-cash "true-up" of $482,000 in stock-based compensation expense
         which was the amount of the forfeiture expense related to vesting
         options previously deferred in the legacy system, most of which was
         included in SG&A expenses.

    (B)  Severance payments related to reduction in workforce

    (C)  Expenses related to strategic review of the Company's e-Prescribing
         business segment

    (D)  The Company's U.S. operations' net losses for U.S. tax purposes are
         fully provisioned.  The non-GAAP provision for income taxes
         represents expected cash taxes to be paid



                                      ZIX CORPORATION
                     RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
                                         (Unaudited)

                              Nine Months Ended September 30, 2009
                              -------------------------------------
                                Non-Cash           Strategic
                                 Stock-     Non-    Alter-  Income
                                 based    Recurring native  Tax     Non-GAAP
                    GAAP         Comp.     Items   Review   Impact  ("Adj.")
                   Results       (A)        (B)     (C)     (D)     Net Loss
                   -------       ----      -----   ------   ----   ---------

    Revenues    $22,462,000                                       $22,462,000

    Cost of
     revenues     7,088,000    (333,000)  (91,000)                  6,664,000
                  ---------     -------    ------      ---   ---    ---------
    Gross
     profit      15,374,000     333,000    91,000        -     -   15,798,000
    Operating
     expenses:
      Research
       And
       develop-
       ment       5,238,000    (280,000)   (8,000)                  4,950,000
      Selling,
       general
       and
       adminis-
       trative   14,429,000  (1,885,000) (620,000) (168,000)       11,756,000
                 ----------   ---------   -------   -------  ---   ----------
    Total
     operating
     expenses    19,667,000  (2,165,000) (628,000) (168,000)   -   16,706,000
                 ----------   ---------   -------   -------  ---   ----------
    Operating
     income/
     (loss)      (4,293,000)  2,498,000   719,000   168,000    -     (908,000)

    Other
     income,
     net            176,000                                           176,000

    Income/
     (loss)
     before
     income
     taxes       (4,117,000)  2,498,000   719,000   168,000    -     (732,000)
    Provision
     for
     income
     taxes           (7,000)                                 6,000     (1,000)
                      -----         ---       ---      ----  -----      -----
    Net
     income/
     (loss)     $(4,124,000) $2,498,000  $719,000  $168,000 $6,000  $(733,000)
                ===========  ==========  ========  ======== ======  =========
    Basic
     and
     diluted
     loss
     per
     common
     share           $(0.07)                                           $(0.01)
    Basic and
     diluted
     weighted
     average
     shares
     outstanding 63,335,508                                        63,335,508
                 ==========                                        ==========

    (A)  Non-cash stock-based compensation charges relating to stock option
         grants awarded to employees and third-party service providers and
         accounted for in accordance with SFAS123R, "Share-Based Payment,"
         currently within the scope of ASC 718-10.

         During the third quarter the Company converted to a new third party
         stock option system which spreads ratably the expense related to
         stock option forfeitures over each quarter of the vesting period
         compared to our legacy system that deferred the forfeitures until
         option grants were fully vested.  Although both the new and the
         legacy systems record the same expense over the life of fully
         vested stock options, the timing difference created by the two
         different systems required that we align the two systems upon
         conversion.  In the third quarter our SFAS123R expense includes a
         non-recurring, non-cash "true-up" of $482,000 in stock-based
         compensation expense which was the amount of the forfeiture expense
         related to vesting options previously deferred in the legacy system
         most of which was included in SG&A expenses.

    (B)  Severance payments related to reduction in workforce

    (C)  Expenses related to strategic review of the Company's e-Prescribing
         business segment

    (D)  The Company's U.S. operations' net losses for U.S. tax purposes are
         fully provisioned.  The non-GAAP provision for income taxes
         represents expected cash taxes to be paid



                                 ZIX CORPORATION
              RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
                                   (Unaudited)

                                          Three Months Ended
                                          September 30, 2008
                                          -------------------
                                          Non-Cash      Income
                                        Stock-based      Tax     Non-GAAP
                              GAAP      Compensation    Impact ("Adjusted")
                            Results          (A)         (B)      Net Loss
                            -------     ------------   ------- -------------
    Revenues               $6,709,000                             $6,709,000

    Cost of revenues        2,383,000         (80,000)             2,303,000
                            ---------         -------      ---     ---------
    Gross profit            4,326,000          80,000        -     4,406,000
    Operating expenses:
      Research and
       development          1,590,000         (64,000)             1,526,000
      Selling, general
       and administrative   4,232,000        (538,000)             3,694,000
                            ---------        --------        -     ---------
    Total
     operating
     expenses               5,822,000        (602,000)       -     5,220,000
                            ---------        --------      ---     ---------
    Operating
     income/(loss)         (1,496,000)        682,000        -      (814,000)

    Other income, net          97,000                                 97,000

    Income/
     (loss)
     before
     income taxes          (1,399,000)        682,000        -      (717,000)
    Provision for
     income taxes            (110,000)                   8,000      (102,000)
                             --------        --------    -----      --------
    Net income/(loss)     $(1,509,000)       $682,000   $8,000     $(819,000)
                          ===========        ========   ======     =========
    Basic and
     diluted loss
     per common
     share                     $(0.02)                                $(0.01)
    Basic and diluted
     weighted average
     shares outstanding    63,072,191                             63,072,191
                           ==========                             ==========

    (A)  Non-cash stock-based compensation charges relating to stock option
         grants awarded to employees and third-party service providers and
         accounted for in accordance with SFAS123R, "Share-Based Payment,"
         currently within the scope of ASC 718-10.

    (B)  Actual taxes to be paid are consistent with GAAP provision for
         income taxes



                                ZIX CORPORATION
             RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
                                  (Unaudited)

                                Nine Months Ended September 30, 2008
                                ------------------------------------
                                         Non-Cash    Income
                                        Stock-based    Tax     Non-GAAP
                              GAAP     Compensation  Impact  ("Adjusted")
                            Results         (A)        (B)      Net Loss
                            -------    ------------  ------- -------------
    Revenues              $20,866,000                          $20,866,000

    Cost of revenues        7,505,000      (236,000)             7,269,000
                            ---------      --------      ---     ---------
    Gross profit           13,361,000       236,000        -    13,597,000
    Operating expenses:
      Research and
       development          4,516,000      (195,000)             4,321,000
      Selling, general
       and administrative  13,656,000    (1,516,000)            12,140,000
                           ----------    ----------        -    ----------
    Total operating
     expenses              18,172,000    (1,711,000)       -    16,461,000
                           ----------    ----------      ---    ----------
    Operating income/
     (loss)                (4,811,000)    1,947,000        -    (2,864,000)

    Other income, net         435,000                              435,000

    Income/(loss)
     before income
     taxes                 (4,376,000)    1,947,000        -    (2,429,000)
    Provision for income
     taxes                   (187,000)                33,000      (154,000)
                             --------    ----------   ------      --------
    Net income/(loss)     $(4,563,000)   $1,947,000  $33,000   $(2,583,000)
                          ===========    ==========  =======   ===========
    Basic and
     diluted loss
     per common share          $(0.07)                              $(0.04)
    Basic and diluted
     weighted average
     shares outstanding    62,893,809                           62,893,809
                           ==========                           ==========

    (A)  Non-cash stock-based compensation charges relating to stock
         option grants awarded to employees and third-party service
         providers and accounted for in accordance with SFAS123R,
         "Share-Based Payment," currently within the scope of ASC 718-10.

    (B)  Actual taxes to be paid are consistent with the GAAP provision
         for income taxes

SOURCE Zix Corporation


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SOURCE Zix Corporation
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