ZIX CORPORATION OCTOBER 15, 2013 Dan Ballantine, Alexander Johansson & Ye Liang

Agenda  Introduction  Holding Information  Macroeconomic Outlook  Industry Overview  Company Overview  Financial Analysis  Valuation  Recommendation

Zix Corporation  Leading Provider of Encryption  Designed for Regulatory Compliance and Protecting Sensitive Communication  1 in Every 5 U.S. Bank and Hospital  Products & Services:  ZixGateway / ZixMail – Sender Service  ZixAccess – Receiver Service  ZixDirectory World’s Largest Shared Encryption Community  Zix Research Center Source: MarketLine, Zix K

Current Holding  April 17, 2012  Acquired 2,000 $2.89/share  Cost basis = $5,780  October 15, 2013  Current holdings 2,000 $4.85/share  Market value = $9,700  Annualized HPR = 41.22% Source: Yahoo Finance

Macroeconomic Overview  Unemployment Rate  BYOD Catalyst  4 Out of 5 Employees Use Their Own Devices At Work Sensitive Information Concerns Source: Bureau of Labor Statistics, Ribbit

Macroeconomic Overview  HIPAA Compliance  Health Insurance Portability and Accountability Act  Covered entities: health plan, health providers, health care clearinghouses  Also applies to business associates of covered entities  Requirements: privacy, security, and transaction standards regarding health care patient information  Deadline for compliance was September 23, 2013  Continued need for protection as more patient data is stored and transmitted electronically Source: Lorman, American Physical Therapy Association, US HHS

Stock Market Source: Google Finance

Industry Overview  What is Software Industry?  Components System Software Operating Systems Network and database management Other Application Software General business productivity and home use application Cross-industry and vertical market applications Other Source: MarketLine Industry Profile

Industry Overview Source: MarketLine

Industry Growth Source: MarketLine

Industry Life Cycle Steady growth in sales as product acceptance widens Source: UIUC BADM 449

Industry Forces Analysis Source: MarketLine

Industry Forces Analysis  Buyer Power: MEDIUM  High switching cost, open source substitutes available, large population of customers  Supplier Power: MEDIUM  Highly differentiated inputs, low threat of forward integration  Rivalry Among Existing Competitors: MEDIUM  Differentiated products, fast industry growth, many competitors Source: MarketLine

Industry Forces Analysis  Threat of New Entrants: MEDIUM  Low capital intensive, high labor intensive, trusts in certain sub-markets  Threat of Substitutes: MEDIUM  Cheap or free open source alternatives that update more frequently and quickly, capability issue with the alternatives Conclusion: Moderately attractive industry Source: MarketLine

Company Overview  Products and Services:  New to the Family in 2013  ZixONE; byod Source: Zix Corporation Website

Company Overview  Strategy: Differentiation  Highly specialized in data protection  Software-as-a-Service (SaaS)  Revenue method: Annual service subscription fee  Pricing is fixed per sender each year  75% of deals are 3-yr contracts with an average of 2.5 years  Cash generally collected annually upfront  Retention of 90%+ of revenue Source: ZixCorp Investor Relations

Company Overview Source: Zix Corporation Investor Relations

Product Life Cycle Steady growth in sales as product acceptance widens: Demand increases as business related online communication expanding Products reach out to wider range of audience Source: UIUC BADM 449

Business Risk Analysis  Changing regulations on internet privacy  Main customers subject to political factors  Rapidly growing technologies bring uncertainty  Dependent on strong human capital  Existing and potential big players  End user preference  Hacker population brings challenges

SWOT Analysis StrengthsWeaknesses -No long-term debt -Strong cash position -Growing product base -Subscription business model -Operating losses in past 5 years -Forced to exit business segments in the past few years OpportunitiesThreats -Healthcare compliance (HIPAA) -Increased emphasis on security of data and communication -BYOD trend in the workplace -Big data trends -NSA security threats -Increased hacker issues -Rapid technological change

Management Outlook  Optimistic about subscription business model coupled with over $60 million backlog  Enthusiastic about September release of ZixOne to address the BYOD segment  Concerns over increased SG&A expenses in 2013 due to increased sales force  Recognized increased competition from companies such as McAfee and Cisco Systems Source: Zix Corporation Q2 Earnings Call

Recent Financial Information Source: Zix K, Zix K

Recent Financial Information Source: Zix K, Zix K

Current Stock Information Source: Capital IQ, Yahoo Finance MetricValue Current Stock Price $4.85 Trailing P/E36.62 Forward P/E20.70 Market Cap ($ millions) $297.00

Financial Analysis

Comparable Companies Source: Capital IQ CompanyTicker (Exchange)Market Cap ($millions) Tucows Inc. TCX (AMEX)$ Axway Software S.A. AXW (ENXTPA)$ Fortinet Inc. FTNT (NASDAQ)$3, Trend Micro Inc (TSE)$5, Proofpoint, Inc. PFPT (NASDAQ)$1, USA Technologies Inc. USAT (NASDAQ)$53.17 Zix CorporationZIXI (NASDAQ)$291.49

Stock Performance Source: Yahoo Finance

Comparable Company Analysis Source: Capital IQ

Comparable Company Analysis Source: Capital IQ

Discount Rate Source: Yahoo Finance

Discount Rate

DCF Analysis

Decision Drivers  Strengths  Strong cash position and improving balance sheet  Well positioned in health care segment  Additional BYOD segment growth opportunities  Concerns  Strong recent stock performance  Internet and data privacy threats  Operating losses in the past

Recommendation  Valuation Summary  Current Stock Price: $4.85/share  Comparable Companies Valuation: $4.66/share  DCF Valuation: $3.51/share  Recommendation: HOLD

Questions?