1. Presented by Yiting(Joanne) Zeng, Yungchi Lo
11/15/2018

2. Agenda Share Market Prospect and Current Holding
Company and Business Review
Macroeconomics and Industry Review
Financial Analysis and Projection
Benchmarking and Valuation
Recommendation

3. Share Market Prospect and Current Holding
Purchased 2000 $2.89/share on April 17, 2012
Basic cost : $5,780
Sold on April 18, 2016
Current: /share on November 14, 2018
Market value : $6,710
Holding period : 80 months
Gain: % Annualized return: 11.09%
-1000
+2000

4. Company and Business Review
Zix Corporation is a leading security technology company provides encryption,
data loss prevention (DLP), threat protection, archiving, and bring-your-own-device
(BYOD) solutions to meet the data protection and compliance needs of organizations.
Headquartered in Dallas, TX
253 Employees
100% Subscription Revenue
30% of U.S. Banks Are Existing Zix Customers
More than 1,200 U.S. Hospitals Are Existing Customers

5. Company and Business Review
Encryption
Industry leading solution and delivering more than 1.4Mn s daily
Patented best method of delivery system combines strong security with convenient user experience
Only plat form to offer a fully transparent solution , eliminating extra steps or passwords for senders of recipients
Archive
Indefinite storage of s for business legal compliance
E-discovery search and hold capabilities
Advanced Threat
Protection
Encryption
Archiving
Mobile
Security
Data Loss
Prevention
Threat Protection
Defend against spam, viruses, zero-day malware, ransomware and phishing
Multi-layered approach delivers 99.5% accuracy
30-day business continuity for disaster recovery
Data Loss Prevention
Addresses the greatest source of data loss — corporate
Organizations can prevent improper exposure of sensitive information outsidethe network
Significantly decreases complexity, cost, and deployment time
Mobile Security-- ZixOne
Provides employees with easy access to while never storing data on the device
Allows organizations to secure corporate data and meet compliance requirements
Source: Company Investor Presentation Dated 24th October 2017

6. Merge & Acquisition History
03/25/2017
09/14/2017
04/03/2018
Addition of Advanced threat protection, antivirus , anti-spam and archiving
acquired Greenview Data Inc for USD 6.50M.
Expand encryption capabilities and delivery methods
acquired Entelligence Messaging Server Business for USD 1.70M.
Expand Unified Archiving, eDiscovery and Compliance Solutions
acquired CM2.Com Inc.

7. Material Expansion of Total Addressable Market in U.S.

8. Competitors
Encryption Threat Protection, Archive, and Data Loss Prevention business competes with products and services offered by companies such as Microsoft, Barracuda Networks, Inc., Proofpoint, MIMECast, Virtru, and Micro Focus (Voltage).
ZixOne business competes with products and services offered by companies such as AirWatch/VMWare, Citrix (with XenMobile), Blackberry, IBM/Fiberlink (with MaaS360), Microsoft (with ActiveSync), and MobileIron VS

9. Performance and Market Overview
Revenue Breakdown
Sales Channels
Source: Company Investor Presentation Dated 24th October 2017 Dated 24th
VAR: Value Added Resellers
MSSP: Managed Security Service Providers
*On Dec. 22, 2017 the U.S. enacted the Tax Act that lowered tax rate from 35% to 21% (effective Jan. 1, 2018 resulting in one-time income tax expense (non-cash) of $12.3 million due to adjustment of deferred tax balances.

10. Management Team Growth Strategy David J Wagner President/CEO
New Customer Acquisition
Direct & VAR/MSSPs
OEM Partners
International Expansion
Add-on & Cross Sell
Expand Licenses Within Installed Base
Add-on Products to Increase ARPU
Reduce Churn and Increase Retention
Increase Renewal Rate (90%+)
Invest in Core Encryption Solutions
Appointed president and CEO in 2016
Prior to Zix, held leadership roles at Entrust for 20 years, including most recently as president
Held various finance and accounting positions at Nortel Networks and Raytheon Systems
MBA and B.S. in Accounting from The Pennsylvania State University
TRA 13.57% compared to peers TRA 2.99%
Appointed CFO in 2016
20+ years of investor relations, finance and business development experience
Held several senior leadership positions at Entrust and Nortel Networks
MBA from The University of Texas at Dallas and an undergraduate degree from Texas Tech University
TRA 26.79% compared to peers TRA 0.49%
Joined Zix in 2003
20+ years of experience in high-tech marketing
Held various management roles at Entrust, including marketing director of European operations
B.Com. with honors in marketing from the University of Guelph
TRA 9.23% compared to peers TRA 4.43%
David E Rockvam VP/CFO
Geoffrey R Bibby VP: Marketing
David J Wagner President/CEO
Growth Strategy

11. Porter Five Forces Analysis
Barrier to Enter: Low
Software industry is relatively easier to enter
Competition and Rivalry: High
Strong competition in market, and industry consolidation may result in stronger competition
Expansion in addressable market lead to higher level competition
Bargaining Power of Buyers: Moderate
Subscription system and cross selling
Plenty of large size competitors
Differentiate products
Bargaining Power of Suppliers: Low
Only input is system provider
Threats of Substitutes: High
Customers may shift to new communication tools
Some built-in anti-cyber-risk add ins

12. Macroeconomics and Industry Review
Number of active accounts worldwide from 2014 to 2019 (in millions)
86% of professionals name as their favorite mode of communication
66% of is read on mobile devices.
Percentage of that is considered spam: 49.7%.
Global spam volume as percentage of total traffic from January 2014 to March 2018, by month
Source: Kaspersky Lab

13. Macroeconomics and Industry Review
Victims:

14. S W T O SWOT Analysis Competition form larger competitors
Unable to keep up with new cyber threats
Innovation in communication technology (Block chain VOIP)
Growing demand owing to legislation and increase in cyber risk
Leader in BYOD market especially ZixOne
Expansion of total addressable market
Small size
Highly contracted in both product and industry
Depend on third party distributors
Steady revenue generated from subscription
Loyal and growing customer base
90% net dollar revenue retention
No customer >2% revenue S W T O

15. Financial Analysis and Projection Benchmarking and Valuation

16. Key Facts Can meet immediate obligations(liability) Pay no dividends
Not utilized deferred tax assets since 2013
Paid income taxes in without using DTA
The MOST surprise: No debt!!
The MOST risk : if failure in acquisition, working capital will increase, resulting in revenue decreasing.  May consider to borrow  payback with PPE or A/R  Liquidity issue  failure in acquisition again..
The MOST abnormal:$8.1 million net loss in 2017 because of Tax Cuts and Jobs Act of 2017

17. Tax Cuts and Jobs Act of 2017
Tax Cuts and Jobs Act of The Tax Cuts and Jobs Act is a United States Congressional bill to amend the Internal Revenue Code of 1986, effectively altering the rate of taxation for individuals and businesses. The plan would lower the corporate income tax rate to 21 percent and move the United States from a worldwide to a territorial system of taxation.
statutory tax rate decreased from 35% to 21%

18. Negative Influence from Tax Cuts and Jobs Act of 2017 (I/S)
Abnormal
On December 22, 2017, the U.S. enacted the Tax Act which significantly changed U.S. tax law.
The Tax Act lowered the Company’s statutory tax rate from 35% to 21% effective January 1, 2018.
At December 31, 2017, the Company adjusted its deferred tax balances to reflect the new tax rate that resulted in tax expense of $12.5 million.

19. Positive Influence from Tax Cuts and Jobs Act of 2017 (CF)
One time Non-Cash Charge

20. a signal that once ZIX scales, it could become very profitable.
Ratios
1. Profitability Ratio
a signal that once ZIX scales, it could become very profitable.
Source: ZIX.com

21. Great: meet its short-term financial obligations.
Ratios
3. Financial Leverage Ratios:
Debt to Equity Ratio = 0.
One insight: When decides to acquire another company, fund is from accumulative Revenue
Efficient: at using its assets to generate earnings except 2017.
2. Liquidity Ratio
Great: meet its short-term financial obligations.

22. Dupont Analysis

23. Financial Projection
Forward P/E
Assume that deferred tax assets are not utilized. Company pays income taxes at 21%. No change in deferred tax assets

24. EPS
Expect to increase in the future

25. Discount Rate
Three acquisition events happened in
2017 and 2018.

26. Company Valuation (DCF)

27. Company Valuation ( 1st Group of Comparable Companies)
Capital IQ Company Screening Report
Screening Criteria
1) Industry Classifications: Application Software OR Security Software
2) Geographic Locations: United States of America
3) Total Enterprise Value [Latest] ($USDmm, Historical rate): is between 50 and 550
4) EBITDA [Latest Annual] ($USDmm, Historical rate): is between 7 and 19 (Unreported data set to 0)
5) Total Revenue [Latest Annual] ($USDmm, Historical rate): is between 40 and 90 (Unreported data set to 0)
6) Total Debt [Latest Annual] ($USDmm, Historical rate): is less than 10 (Unreported data set to 0)
Source: Capital IQ

28. Company Valuation (2nd Group of Comparable Companies 2)
Share Price
Source: Capital IQ

29. Operating Statistics
Source: Capital IQ

30. Health Panel
Additional Information
Source: Capital IQ

31. Hold Recommendation 10% 20% 40% 30% Growing industry
High Gross Margin, EBITDA Margin and EBIT Margin
20%
Hold
40%
Company Life Cycle
Competitive advantage
30%