1. Nicole Shan, Muen Yue Presented: March 26, 2019
NASDAQ: ZIXI
Nicole Shan, Muen Yue
Presented: March 26, 2019

2. Agenda Introduction Stock Market Prospect Company Overview
Industry Overview
Major Acquisitions
Financial Analysis
Valuation
Recommendation

3. Stock Overview + AppRiver - 1000 + 2000 Industry Application Software
Life Cycle Stage
Growth
Market Cap M
Shares Outstanding
54,481,295
Stock Price (as of 03/24/2019)
$6.66
52 week range
$4.21 – 9.07
P/E Ration (TTM)
22.97
Forward Dividend
N/A
History: Bought on April 17, 2012
Sold 3.96 on April 18, 2016
+ 2000
- 1000
+ AppRiver
Source: Yahoo Finance

4. Company Overview

5. Key Acquisition Activities Key Drivers of Revenue Growth
Business Overview
Company Introduction
Key Highlights in 2018
Zix is a leader in small medium business security, data loss prevention, encryption, and advanced threat protection.
Headquartered in Dallas, Texas
Mission: Protecting business communication for its customers and the communities.
Customers: Organizations in the healthcare, financial services, insurance and government sectors
Differentiator: ease of use and exceptional support
transparent delivery of encrypted messages
3.7 M Total Licensed Zix Users
> 90% Customer Retention Rate
80,000+ Customers
7.33% Revenue Growth
September 2017, Acquired Entelligence Messaging Server Technology (EMS)
April 2018, Acquired Erado
February 2019, Complete the acquisition of AppRiver
Key Acquisition Activities 1
March 2017, Acquired Greenview Data, Inc
Key Drivers of Revenue Growth
New Customer Acquisition
Sales to Existing Customers
Increasing Retention
Source: Capital IQ; Company Website

6. Key Products ZIXSUITE ZIXMAIL ZIXENCRYPT ZIXARCHIVE ZIXPROTECT ZIXONE
COMPLETE AND TOTAL PROTECTION ALL IN ONE
ZIXMAIL
SECURE IN TRANSIT SECURE AT REST
ZIXENCRYPT
SECURITY WITHOUT A DOUBT
ZIXARCHIVE
EASE DIGITAL COMPLIANCE
ZIXPROTECT
DETECT AND PROTECT
ZIXONE
THE PROMISES OF BYOD DELIVERED
Source: Company Website

7. Leadership DAVID WAGNER DAVE ROCKVAM
David Wagner joined Zix as President and Chief Executive Officer in January Prior to his role at Zix, David held leadership roles at Entrust for 20 years. Most recently David served as President of Entrust from 2013 through 2015, where he led the successful integration of Entrust after its acquisition by Datacard.
DAVID WAGNER
PRESIDENT & CHIEF EXECUTIVE OFFICER
He joined Zix as Vice President and Chief Financial Officer in June 2016.
He brings a wealth of experience in the data security market and more than 20 years of experience in investor relations, financial planning, and business and corporate development.
DAVE ROCKVAM
VICE PRESIDENT & CFO
Geoff Bibby joined Zix in September 2003 and serves as Vice President of Marketing. Geoff has more than 15 years of experience in high tech marketing. Prior to Zix, he spent 6 years at Entrust Inc., an internet security vendor, where he served in various management roles.
GEOFF BIBBY
VICE PRESIDENT, MARKETING
Kelly Haggerty joined Zix in April Kelly has more than 20 years of experience in the software security market. Before to Zix, he served as Chief Product Officer for IID, a Software as a Service Security company. For eight years, Kelly held several leadership roles for McAfee (now Intel Security)
KELLY HAGGERTY
VICE PRESIDENT, PRODUCT MANAGEMENT & STRATEGY
DENA BAUCKMAN
VICE PRESIDENT, PRODUCT MANAGEMENT
Dena Bauckman joined Zix in October,2005. Dena has more than 20 years of experience in product management/marketing of security, cloud and networking technology.
Steve Irons joined Zix in September 2003 and serves as Vice President, Sales. Steve is responsible for overall corporate sales, Zix channel partners and marketing programs. He has been a successful sales leader with Zix for several years and has more than 17 years of sales and sales management experience.
STEVE IRONS
VICE PRESIDENT, SALES
Source: Company Website

8. SWOT Analysis SWOT Analysis Strength: Opportunities: Threats:
Large and loyal customer base
Easy to use products
Office 365
Weakness:
Relatively new management team
Small Size
Opportunities:
New Acquisition
R&D
Geographic Expansion
Threats:
Competitors might take up the market share
Weak management on the new combined company

9. Industry Overview

10. Growing Trend
Source: The Radicati Group; 451 Research

11. Source: IBISWorld; Company Website

12. Industry Overview Life Cycle Stage Late Growth Technology Change High
Competition Level High
Industry Globalization High
Capital Intensity Low
Concentration Level Medium
Barriers to entry Medium
Switch Cost Medium

13. Competitors Email Encryption Data Loss Prevention
Threat Protection
Mobile Security
Cloud Security

14. Key External Drivers for ZIXI
Mobile Internet
Connections
Cloud and Virtualized Business Environments Expand
Government Regulation, Consumption and Investment
Per Capital Disposable Income

15. Major Acquisitions

16. Acquisition Activities
1.7 Million
Acquired of Entelligence Messaging Server technology from Entrust Datacard
Strength Zix’s encryption capabilities, demonstrating the company’s ongoing commitment to deliver the industry’s premier encryption solutions.
14.4 Million
Expand Zix’s cloud-based archiving capabilities into more than 50 content channels, including social media, instant message, mobile, web, audio, and video
7.7 Million
With the acquisition, Zix adds advanced threat protection, antivirus, anti-spam and archiving capabilities to its industry-leading encryption to deliver a comprehensive security solution for customers that demand bundled services.
Source: Company Annual Report 2018

17. One Major Acquisition in 2019
Advanced Threat Protection
Secured Archiving
Encryption
Secured Hosted Exchange
Microsoft Office 365 Reseller
Combined Company
Double revenue and adjusted EBITDA
Approximately $8 million of cost savings
Attach AppRiver’s O365 solutions to Zix’s base
Higher attach rates, customer retention and greater market share
Source: Earnings Call Presentation Q4 2018

18. Financial Analysis

19. Financial Analysis Sales Revenue EBITDA Net Income Diluted EPS
Return on Equity
Return on Assets
Source: 2018 Annual report

20. DuPont Analysis
Return on Equity
Source: Annual reports

21. Valuation

22. Valuation-Comparable Comps
MobileIron Inc. is an American software company specializing in mobile device management . Its software allows the management of mobile devices such as smartphones and tablet computers in an enterprise environment, as well as the secure mobile access to enterprise data.
Mkt. Cap($MM)-566
Rev.($MM)-193.2
EBITDA($MM)-(38.7)
Sophos Group plc is a British security software and hardware company. It provides the services including encryption, security, and mobile security.
Mkt. Cap($MM)
Rev.($MM)-693.4
EBITDA($MM)—(39.1)
OneSpan provides a cloud-based and open architected anti-fraud platform
Mkt. Cap($MM)-751
Rev.($MM)-212.3
EBITDA($MM)-9.6
Qualys, Inc. provides cloud security, compliance and related services and It has added cloud-based compliance and web application security offerings.
Mkt. Cap($MM)
Rev.($MM)-278.9
EBITDA($MM)-79.3
Mimecast provides the services including security, archiving, and protection on business mail. And also it is specializing in cloud-based management for Microsoft Exchange and Microsoft Office 365.
Mkt. Cap($MM)
Rev.($MM)-321.6
EBITDA($MM)-25.7
Source: Company Websites

23. Valuation-Comparable Comps
Source: Capital IQ

24. Valuation-DCF Key Assumptions
Company Combined* with NO Material Cancellation of Revenues:
Revenues increase of between 132% and 137% year-over-year.
Cross-selling among Customers Boost Organic Growth:
Customer Base: Plus
Add On: ZixSuite + Office 365 +Hosted Exchange
Cost Savings of 8 Million Annually:
$2 million of executive compensation and expenses;
$2 million of third-party cost synergies for redundant expenses;
$4 million of headcount reductions as the result of 40 employee separations. 
Source: Company Website;
Outlook includes approximately 10 months of AppRiver financial results consolidated into Zix and also GAAP adjustment.

25. Valuation-DCF Data Assumptions 2014 2015 2016 2017 2018 2019
Revenue (mm) 50 55 60 66 70
162
Gross Margin
83.47%
82.47%
82.49%
80.81%
78.45%
59.00%
R&D % of Rev
17.98%
15.20%
15.88%
16.72%
16.07%
13.00%
SG&A % of Rev
52.08%
52.80%
51.11%
48.54%
48.24%
42.00%
EPS
0.07
0.09
0.11
(0.15)
0.29
(0.08)
2023
62%-65%
8%-10%
38%-39%

26. Valuation-DCF Discount Rate Total Equity Value: 397,196,000 WACC 6.6%
Average ROE (5 yrs) %
Premium %
Terminal Growth Rate 2%
Terminal Value ,815,000
Discount Rate %

27. Recommendation

28. SELL 1000 @ $7.00 Good thru April 2, 2019 Recommendation
Place a Limit Order to:
SELL $7.00
Good thru April 2, 2019
Price Range: 6.90 – 7.08