1. Zix Corporation (ZIXI)
Analysts: Jiamo Tian
Analysts: Jiaxin Yang
October 20, 2016

2. Agenda Company Overview Industry & Macroeconomic Overview
Financial Analysis
Projection & Valuation
Recommendation

3. Current Holding Purchased 2000 shares at $2.89 on April 14, 2012
Sold 1000 shares at $3.96 on April 18, 2016 
Current: 1000 $4.13/share on October 19, 2016
Market value: $4,130
Gain: 42.9%
Source: Yahoo Finance, URL:

4. Company Overview

5. Company Overview Leader in easy to use secure email solutions
Incorporated in Texas in 1988
Publicly traded on the Nasdaq Global Market (Ticker: ZIXI)
Headquartered in Dallas, Texas, additional offices in Burlington, Massachusetts, and Ottawa, Canada
More than 14,000 customers, include the nation’s most influential institutions in healthcare, finance and government
Services supported by ZixData Center, a data center storing transaction processing data
Source: Zix Website. URL: ZIXCORP 2015 Annual Report

6. Company Overview-Business Segments
 Encryption

ZixDirectory+ Best Method of Delivery+ ZixGateway: enables the secure exchange of s that include sensitive information
Data Loss Prevention—launched in 2013
ZixDLP: addresses business’s greatest source of data loss – corporate
Bring Your Own Device solution—launched in 2013
ZixOne: provides access to corporate while never allowing that data to be persistently stored
Source: Zix Website, URL: ZIXCORP 2015 Annual Report

7. Company Overview-Business Model
Revenue source: customer subscription
Contract terms: generally 1-5 years, average 2.5 years
Historically retained approximately 90% of recurring revenue on an annual basis
Channels:
Direct sales—larger business
Telesales—small to medium-sized accounts
Value-added resellers
OEM (Original Equipment Manufacture)
Source: Zix Website, URL:

8. Company Overview-Recent Headlines
10/05/16
Zix Corporation Extends Superior Ease of Use and Security for Its Hosted Encryption Solutions
10/04/16
ZixCorp to Announce Third Quarter 2016 Results on October 25
09/27/16
LAWtrust and ZixCorp Partner to Expand Use of Industry-Leading, Easy-to-Use Encryption in South Africa
Source: Zix Website, URL:

9. Company Overview-Management View
Committed to easy to use, secure communication
Seek long-term partnership with channel partners and strategic partners (Google, Cisco, Intel, Symantec)
Achieve and maintain influential customers such as government institutions
Secure new customer subscriptions and subscription renewals from existing customers
Continually improve the performance, features and reliability of products and services, to keep pace with technological developments and frequent changes in customer requirements
Source: Zix Website, URL: ZIXCORP 2015 Annual Report

10. Company Overview—SWOT Analysis
Zix Corporation
Strength
ease of use
strategic alliance
recommended by regulators
no debt
Weakness
heavily rely on third party distributors
without substantial financial and technical resources
new to the BYOD and mobile security space, no established brand
Opportunity
stricter regulations
increasing users
increasing demand in BYOD solutions
expand business into other countries
Threat
customers shift messages to other communication channels
industry consolidation
rapid change in technology
system breakdown and volatility
Source: Zix Website, URL: ZIXCORP 2015 Annual Report

11. Industry & Macroeconomic 0verview

12. Industry Overview Data Processing& Hosting Services Industry
Life Cycle Stage: Growth
Concentration Level: Low
Competitions Level: High
Annual growth : 5.5%
Annual growth : 4.2%
Trend toward industry consolidation expected to continue, lead to increased competition
Trend toward mobile applications
Source: Zix Website, URL: ZIXCORP 2015 Annual Report; IBISWorld Industry Report 51821

13. Industry Overview-Email Encryption market
2015: $541.4mm
2020: $1,550mm
Estimated annual growth: 37%
Source: Statista, URL:

14. Porter’s Five Forces Threat of New Entrants High Threat of Substitutes
- Low new entrants barrier
Threat of Substitutes
Moderate
- Product differentiation
Competitive Rivalry
- Several competitors
- Industry consolidation
Bargaining Power of Buyers
- Increasing demand
- Regulatory enforcement
Bargaining Power of Suppliers
Very High
- Heavily relies on third-party supplier
Source: ZIXCORP 2015 Annual Report

15. Key Drivers—Regulations on Data Security
Demand in healthcare sector augmented by regulatory requirements under HIPAA and HITECH Act.
Financial institutions and their service providers are subject to GLBA enforced by FTC
ZIX’s services recommended by regulators
Source: ZIXCORP 2015 Annual Report

16. Key Drivers—Email Users and Traffic
% of Services Online
Users and Traffic
Source: IBISWorld Industry Report 51821; Radicati, URL:

17. Key Driver—IT Spending
Source: Statista, URL:

18. US GDP Growth

19. Financial Analysis

20. Financial Analysis—Stock Performance
Nasdaq
ZIXI
Source: Yahoo Finance, URL:

21. Financial Analysis—Stock Performance
Source: Yahoo Finance, URL:

22. Financial Analysis—Key Facts
No Debt
No Dividend
$48.9mm Deferred Tax Assets
From operating loss carry forwards and temporary timing differences
Realized $1.0 million, $1.9 million, $11.9, and $35.5 million tax benefits in 2013, 2012, 2011, and 2010 resulted from decrease in deferred tax asset valuation allowance
No tax benefit realized in 2014 and 2015
Source: ZIXCORP 2015 Annual Report

23. Financial Analysis—Key Facts
Second Quarter 2016 Financial Highlights & Year-Over-Year Comparisons
Revenue increased 12% to a record $14.9 million
New first year orders (NFYO) increased 20% to a record $3.0 million
Total quarterly orders increased 18% to a record $20.4 million
Ending backlog increased 9% to a record $80.9 million
Annual contract value increased 9% to a record $59.5 million
Cash flow generated from operations increased by $0.5 million to $3.5 million
Source: ZIXCORP recent press release, URL:

24. Financial Analysis

25. Financial Analysis

26. Projection & Valuation

27. DCF

28. DCF
Source: 10-year treasury yield on Oct. 14, 2016, URL:
Source: Yahoo Finance, beta
Source: URL:

29. DCF
$ 3.88

30. Competitors Company Name Market Capitalization Main Business
Proofpoint, Inc. (NasdaqGM:PFPT)
$3,076.1mm
threat protection, incident response, regulatory compliance, archiving, governance, eDiscovery, and secure communication solutions
MobileIron, Inc. (NasdaqGS:MOBL)
$233.1mm
purpose-built mobile IT platform that enables enterprises to secure and manage mobile applications, content, and devices while providing their employees with device choice, privacy, and a native user experience
VirnetX Holding Corp (AMEX:VHC)
$214.2mm
develops software and technology solutions for securing real-time communications over the Internet in the United States
Tucows Inc. (NasdaqCM:TCX)
$328.3mm
provides network access, domain names, and other Internet services in the United States, Canada, and Germany
Source: Capital IQ

31. Comparable Analysis

32. Comparable Analysis

33. Recommendation

34. Hold Recommendation Potential Opportunities: Potential tax benefits
DCF Valuation $
Potential Opportunities:
Potential tax benefits
New CEO
BYOD market
Increasing users
Stricter regulations
Current Price $
Hold
Comparable Valuation $

35. Thank you!
Q&A