Zix (ZIXI) 28 Feb 192018 Q4 Earnings call transcript

Good afternoon, and welcome to Zix Fourth Quarter and Full Year 2018 Earnings Conference Call. My name is Miriam, and I will be your operator this afternoon.

Joining us for today's presentation are the company's President and CEO, David Wagner; CFO, David Rockvam; and Vice President of Marketing, Geoff Bibby.

Following their remarks, we will open the call for your questions. I would now like to remind everyone that this call will be recorded and made available for replay via a link in the Investor Relations section of the company's website.

to call like Bibby. to would I turn over the Geoff Now please Sir, proceed.

release in It's could of in to to subject the The XX-K to cause actual results press differ from conference risks. with statements statements. examples materially in Good this year thank the our materially call. the and everyone, for our the forward-looking our you, the CFO, which ended release section our from afternoon, Thank Miriam. announcing cause and you to Wagner; Relations and quarter we are, We most that the update no full risks that December of website in financial Miriam filing and such obligation risk a and statements. to and forward-looking statements our company. course of our issued year note CEO, in recent is XXXX, of press in Dave actual Risk performance those XX-Q today's differ will this today available Please call, Rockvam. fourth future that could regarding the full Factors you the the call. contained that closed, XXXX provides Investor of events factors statements the results XX, me company section earnings those to important results future After copy caution www.zixcorp.com. are With Dave as and we mentioned, those market quarter fourth at forward-looking undertakes joining consider for Form and note also These make SEC uncertainties during forward-looking a

in included Non-GAAP We measures site. GAAP release, will our in from, and the of present results. relations isolation you GAAP the to, all company's performance. to the financial a encourage considered reconciliation found A be in non-GAAP both the consider to measures. GAAP During are which for, substitute superior to not call, or can analyzing is intended measures certain financial non-GAAP investor today's of measures when section press we

would to to Dave his over that, Wagner turn like the with Dave? remarks. Now, I opening for call

good first-year exemplify customer their the today. up effective everyone, the a sell than From adjusted years. than continue double-digit provides are and in of our thank who for of phenomenal the With easy quarter, you, into in did new for EBITDA XX.X%, XX% revenue and growth fifth With of driven new short, to $XX.X ZixArchive, existing solutions, from that Geoff, vendor, QX last XX% record million we orders Not as with to our our the backed migrate bundle afternoon and strategic the up revenue cross million quarter. delivered a for which beginning, the use, the the over successfully of couple of year by the customers, returned up to attach care. year orders XX% results us record we complete growth more third cloud. a we first customers for security the for and are XX% of quarter joining the consecutive looking or increased of for looking they improve Thanks, to consolidate posture strong highly knew another They total and year security our new only by up success more made fourth installed ZixProtect to rate, In first base focus to to execution roughly a continued XXXX topped orders we $X.X coming quarter and our company. and XX% also but quarter row. a

we've been accelerate drive way, the profitable cloud-based to platform, right our email one product Along remained the growth, point leading an become security stronger our assemble rates first-year we orders to to at the continues of strategy new we XXXX point the our we inflection providers. As able to could and solutions. shape of which increase special. true and our to which that to the of to and our growth adoption journey continues growth, was commitment formation offer cloud-based inform the journey, enhancements attach made see of something our

We further addressable with in capabilities email business communications. market broadly protecting to Erado Our strengthen ZixArchive sole archiving that a further one growing expanded transition leverage XXXX. began to company that success our addition a and of our is with from beginning. were and ZixProtect on to with all April the the success This focus more

strong We also the product sales and a cloud and the both orders partners helped really XXXX, our reach platform a year May it's channel significant Zix. our market meet and address annual better current in performance not It putting to us record for position revenue, made to customer's our future a teams product, and But just enhancements the was that revenue. trends our from needs. great also recurring our successful

reduced We in sales year, empowered added partnerships additional dozens more them on expanded G-suite partners the our business of our resellers team During our favor aligned with and reliance account-based tools OEM support targeted development and our cloud-based and to grew their with of MSP enhanced marketing we representatives, we growth. program, offerings.

launched years of cloud managed all encryption, based to company's step represents leading together sales continuing consistent a of and that more enhanced solution across easily sizes. company interface. our In could buyers, business expanded email archiving, is our ZixSuite, for week, security have security social league proposition nearly unified multiple the our last business ZixArchive This pleased a value our forward performing XXXX and is and efforts a It came email result, with combination of XXXX a acquisition capabilities cloud, start supervisory all This customer fashion. summary, across and centralized video include three archiving beyond strong strengthening is email additional with the from gates capabilities teams month. the of momentum, channels, highly of business opportunities. email AppRiver We collaboration we not locations DLP communication, threat and ZixProtect, brings environments. advanced combines ZixEncrypt including for we solution major XX text with further the major positive all email a effective the out significantly also solutions As the compliance-oriented be that We and tools, platform. which that on been media, fronts. industry of a cross-selling their launch compliance a continuity, work with and Last into forward and integrates we client, protection, in email

of better today, successful a the tailwinds is, a All major steps of we with really that opportunities cloud to our customers. foundation much which business from Along and have We're our the also steadily working favor. culminated cost to are scale, business further. even these AppRiver is to strong into with more more stronger alignment positioned and our cross-selling with business better in market help synergies with build

for more Dave over to Dave? turn details the quarter. the to provide Rockvam the CFO, call I'll on financials our Now

was growth more we than consecutive and record QX growth third Thank a return you, that afternoon record first-year for of achieved everyone. revenue, or quarter. including the top new orders and ACV good a XX% to fact many success line Dave the ways, ARR, in double-digit

joined adjusted We as the combined strong also to and XXXX growth growth to alluded level management achieved -- Dave earlier, adjusted we for EBITDA of in highest quarter really orders disciplined our of. margin which total achieve we XX%. cost are proud And of Zix the since I EBITDA our and us with he enabled

driving this the really to Zix transformational in team. dedication of acquisition the Our first record results quarter coupled with of speaks a year the

in now numbers to more Turning our financial detail.

last million cross-selling first-year $X.X compared same increased with the orders hosted year. offerings, was new the for threat email our higher to archiving due Our activity. XX% quarter continued advanced the market The of along increase $X.X million encryption and in to adoption protection, quarter to

the XX% our demand and customers and first-year to solutions. up first-year growing orders ZixProtect both than from New for for more new new continued orders, ZixArchive total demonstrating make these existing

new for Revenue first from our You can customers record our same of came $XX.X new from from versus see in customers balanced clearly XX% fourth quarter sales million breakdown came $XX.X for XX% new to the base. the installed were from existing XX% this order or year. XXXX while million mix last more increased quarter

over revenue from For XXXX. the increased million in $XX.X million X% to full-year a record $XX.X

With year respectively. we million $XX.X quarters quarter the Our million, revenue exceeded guidance and $XX.X did and include revenue Erado of XXXX for revenue. three our

quarter million which gross total the adjusted was Our for of XX.X% $XX.X in or the revenue of $XX.X fourth dollar XXXX. of was an million basis total or quarter revenue, improvement XX.X% on a profit from

Our for down adjusted year-over-year. was percent profit gross margin QX

well and is cost primarily reminder, deferred a with acquired the haircut revenue Erado a associated As as archiving. slightly the associated as with this higher to due subscription

was adjusted the In quarter total the the functions in the software, capitalization capitalization decrease to revenue, about with million quarter a of expenses $X.X in $X.X last due compared slightly our we'd or Our XX.X% year. were The number expect and million hosted R&D software total higher to million XXXX. and primarily total, of of revenue for XX.X% to year-over-year XXXX fourth or of $X.X fourth of was XXXX added platforms. in associated features new

growth, revenue quarter expense the compared million The or solutions. the $X.X expansion qualification teams and million of selling revenue company's the DBR or selling of marketing advanced and adjusted were total or to particularly due to of protection Our increase in XX.X% archiving total and marketing for threat support XX.X% with our in lead $X.X last year. QX to our was of expenses

by on as has the in of lower our expenses selling of ASC XXX previous calls, of been offset in and implementation marketing I mentioned increase expenses XXXX. result commission some a As

or were of $XX.X large us or an which QX compared of NOLs fourth per was our the of $X.X increase fully diluted share to million due general additional year. million of compared per net total net million share, XX% value or the to of diluted $X.X in expanding basis, revenue, $X.XX loss last income reported adjusted For our revenue reported expenses last $X.XX loss QX GAAP $X.X allowed million forward. The year. $X.X we in capture or million profitability, of administrative to quarter of a carry total XX.X% and a of of or On XXXX, our fully to

net improved diluted million per $X.X diluted of share full a or $X.XX For $X.XX fully per to or share loss million the compared to $XX.X and fully XXXX. year, income in

As the largely XXXX change. charge result QX, of loss of one-time was U.S. in the million due $XX.X non-cash of a tax a to $XX.X million reminder, a

slight a million non-GAAP our amount $X.X represents fourth share, guidance $X.XX tax in per improvement share Our last the we the per year. was or fully over matched excluding QX quarter reported deferred diluted quarter adjusted for net income, $X.XX and

the share year, over increase share. of adjusted our the an And full we fully for in QX improvement deferred record a record $X.XXX net in excluding XX% and $X.XX $X.XX $XX.X in an XXXX For QX, non-GAAP matched we $X.X last compared a XXXX totaled XXXX. guidance million, million year. amount per represents for reported our diluted million income reported or adjusted per of the $X.X was finally, EBITDA tax to

a of from last increased for QX, XX.X% revenue, As reported adjusted percentage in we QX XX% total EBITDA of to XXXX year.

the $XX.X had million. and the purchases, XXXX primarily intangibles quarter in adjusted million, quarter EBITDA, the capital we operations which capitalized XX% to for $X.X we guidance acquisition. which of At from R&D. end was consisted internal normal of $X.X cash. gave development pleased and business projects Cash are was of QX, to million were other fourth CapEx software flow following up achieve the XX% the for We Erado

business our full $X the the XXXX, multi-tenant CapEx other modernize intangibles million acquisitions enhance our be to million. year will This integrate takes $X into investments our and forecast For and cloud we platform. range and our between account systems,

also XXXX. and approximately expect depreciation in We million amortization $X of

the the Contract totaled end Our from the XXst, which Annual last as $XX.X Value, dollar quarter $XX date slightly XXXX, of from of a committed up year. of as XX% record of backlog, million last ACV, or year. QX the which value million, our up fourth million same December was represents $XX.X At contracts, was

rest January, in recurring you as call consistent our how or uses ARR, the more because of is with referred it annual metric. this If remember industry AppRiver ACV from our acquisition revenue, we

ARR be forward. instead ACV We using going will of

for revenue our to quarter XXXX first for and the anticipate $XX.X guidance. million year $XX.X full million. financial Now, and currently range quarter first We between

revenue excluding fully results We fully and diluted outlook loss $X.XX non-GAAP earnings required share acquired are be forecast one results also in will be GAAP deferred for on net These and a includes adjusted GAAP quarterly And basis accretive of basis, dilutive includes adjustment a expenses, AppRiver per share, month XXXX. the Zix's year-over-year we income revenue forecasting consolidated deferred a non-GAAP purchased $X.XX The between also from into approximately adjusted to per AppRiver slightly accounting. adjusted for diluted tax financial QX, loss on earnings and non-GAAP $X.XX the quarter. the be on to be acquisition starting between of to a $X.XX. financial to first of a and

the expect For be which revenue between full would represents a Corp On revenue of XXXX, increase in organic XXX% and fiscal this between offering. XX% million, XXX% XXXX. basis, and $XXX for growth product year compared pro we range to Zix an $XXX million to forma

a of GAAP fully share our share, the diluted fully excluding share EPS and to earnings our to for the non-GAAP $X.XX to be is adjusted and between loss deferred expense, $X.XX $X.XX for of be year. forecasting between and also earnings full flat down fiscal $X.XX are increased We tax Due to per XXXX. per loss a diluted count,

However, outlook revenue income, includes revenue for results months or consolidated in AppRiver on second net deferred XX forecasting financial and shareholders from excluding adjustment compared the the required XX% on financial GAAP basis, to deferred we On a into to pure half acquired approximately to benefit. of be XXXX. adjusted dollar non-GAAP XXXX second includes accretive a of tax are over purchased This the AppRiver EPS would we of growth accounting. expect Zix half also of

adjusted reiterating share, comments approximately Also, investment million year from XX.X Our GAAP Capital. earnings included the the with on True call XX% basis million million both of per non-GAAP rate on addition and to a of our Wind to targeting conference associated XXXX are a growth million of end, shares XX% at $XXX approximately by January year-over-year. fiscal $XXX representing our XX, $XXX annual we approximately recurring revenue

expecting all we well previously the now also months we the These quarter XXXX. adjusted initiatives have stated Also, revenue XX% million stated are ahead XX complete XX earlier. We and to fourth all million the EBITDA a of result, are savings as of initiatives, savings see in third we $X of cost million XXXX. with the full of should and our of those to impact $XX margin in $XX identified approximately of a quarter executed

have my I up our to Before that new investor I wanted long-term a outlines wrap now slide presentation in note prepared we our remarks, that financial model.

presentation next our this in objectives commentary are transformational long-term of to just XX% I give better growth $XXX over that million of to We can to this found XX%. these XX% quickly Investor EBITDA gross are on ARR some of model this five providing following and to years. the The around investors the of our a financial I wanted site, the on provide targets. found model targeting page on margins In slide presentation to after of sense be but can which IR XX% million, we $XXX the be acquisition. opportunity to significant three margins full adjusted course model, mentioned, the

further reseller to growth, lead the scale capabilities. of cost acquisition be ARR platform at achieve will to mentioned. provide generation the will that opportunities. margins, their As With we've us we us product $XXX have the channels scaled products, This the lead the with only $XXX enhancements We while that is level of these million drive at same It notice communicated a expanded before, that lower despite generation capability to leveraging the stronger our enable which and significant cross-selling gross business. result our Zix's they EBITDA not ARR, than but through AppRiver, making position strong with to much are believe drive suite, of the you'll higher to margins, we now I the of is are adjusted lower acquisition just third-party growth to in margins, this our to largely pre-operator synergies business, go-to-market and reaping margins. time and a stand-alone million significantly respect

model EBITDA be time our while that to were strategy realistically in five a So our of within bringing in ARR up, in essence, our margins XXXX, the alone. near only higher years, we front up us increase adjusted they much it range significantly scale have reflects back could achieved ever the and at Zix volume will than

As drive last AppRiver. comment significantly shareholders. further, Dave for on returns will on is one to And opportunity to we have the have elaborate that regarding is the financial acquire that we taken debt higher

loan. disclosed have term we million have out taken earlier, $XXX As we

give value, pay the long-term would loan adjusted our our at to annualized can QX level with EBITDA times. guidance debt put down very with This model, would on to deliver X.XX adjusted comfortable with further in EBITDA ability banks the and our roughly growth future. million our and we us Our are the $XX.X which deleveraging leverage we is coupled in

net from in coupled fact, of AppRiver be We the AppRiver valuation prior the the could all with the with loss loan carry-forwards to down generated -- five-year up $XXX the getting EBITDA debt the long-term payback model, with pay we're adjusted asset. a and horizons. in our step million to In position that

have what a generation, further with for the that will new results as a Now, with full look existing winning strong flow we performed regular one. be lot value. is creating that drive out would demonstrating we we hosted customers can or successful we three gives we quarter bear Both we're but saying do exceptionally whether ago eye not basis and that cash to the in it's new an to shareholder that strong are us fruit. cross-selling competitive and years well do our returns and of capital and offerings Overall, an is shareholders year, our go to really starting forward exactly options for demonstrates the strategy to our bundled the structure laid

transformational calls we new solutions. of a more look impactful achieve financial Form next Altogether, profitability to a stronger please analysis expanded scale, this XX. AppRiver, way our capitalizing three my operating by for results, which file and extend completes long-term a customer March financial for to we cost synergies, leverage summary financial This and to more significant by by With detailed recent our acquisition years. much Dave? help complementary the our to growth balance our the model, illustrated of on success in XX-K, five this us the which refer base should within plan

Thanks Dave. for growth are overview, as well review some drivers capabilities it of questions. before and with I'll the now the progress, to on as up our AppRiver we open update our three financial the product you call our for we new relates main where integration as

As increasing our sales a drivers acquisition, three to one, existing three, customers retention. reminder, new growth are, and two, customer

first driver new new customers. Our is growth to orders

and As five strong bundle like of we're protection the in I won encryption, customers customer Two advanced for new while includes the protection McAfee our wins that customers. new QX included for competitors a email uptake top ZixProtect. five new were our mentioned new one advanced key top threat alone. displacing seeing earlier call, of by Three Microsoft. in the and our the of We other Barracuda, by was solutions threat

the right industry powerful positioned the situated And the service. that The and displace trends at to our fact, over quarters competitors. the migration offerings versatility respond customers of growing Customers one most wins, as the achieved email Zix our superior past all recognizing our better in of successfully results five no cloud. of customer we of we customer in are of strength our well to top we we new heart ourselves In secular needs. demonstrates several as five our have have to

insurance with Our of customer title their could and opportunistically. using largest hosted our Microsoft the win services responsive were the within new completely environment quarter service. new financial through protect business a customer looking superior many customer was effectively for for that Office vertical. encryption encryption customer customers service communications like This email This easily

use under cloud than selected vendor. recognize and encryption the meaningful high our wanted They ease XX will they mailboxes Zix valued XX,XXX They out improve As have as rollout to meaningfully will best-in-class be they driver win XXX roll domains of and more They posture. encrypt email of this than They Zix our days. enterprise say accelerated, using more an the their for filtering. XX is across sufficed quality DLP eventually will a rolled to us. out encryption service as to of different in importance the domaind. our the growth use in This new security was to primary

total sales our and and at by orders from the and MSPs efforts, new XX% other. came from Looking first-year direct web VARs our quarter during channel, XX% distribution X% sales

program our encouraging. develop Our in progress channel XXXX to is

still recurring cloud-based have aggregate ZixArchive Although XX our approximately MSP new With transacting attach December. than doubled aggregate the rate MSP And from September in monthly Program respectively. to and as partners have as to from XX% and ZixProtect they sold revenue exciting more of of our new we're early ZixEncrypt. MSP XX% many an days, up seats of in partners. Equally

ever. the acquisition our even best an on our of opportunity quarter more to AppRiver, that With internationally, progress With the to respect way. in was have QX international meaningful success expand we

an we platform. strategy to Going international first be forward, AppRiver's shifting nautical our MSP built will on approach

growth at a our is let's Now which take closer second customers. existing sales look to driver

fourth the Looking the the healthcare All increased in for encryption five at vertical top in to our five also being similar were third well to added of sales the ARR, quarter fifth add-ons our ZixProtect. add-on the four quarter, with email Government.

new a our wins with Microsoft view the success, majority or to believe like of our alone protect significant we're just we demonstrating selling we're Gartner's not having addition displaced continuing the customers ZixProtect, that is complemented account view customer increased vendors ZixProtect, in also and see quarter, fully a Microsoft that business company's enough Competitively to as having ZixEncrypt So existing their fees. for to with communications.

during growing the quarter demonstrating new our our solutions. came attach to first-year base, orders of installed customers As I propensity of the additional mentioned, XX% our from

advanced our QX when out of for threat rolled is rate aggregate Our Greenview which bodes our ahead target for protection well we're first future. the now over with XX%, which Data our Clearly, with XXXX we XXXX. attach was plan ZixProtect acquisition, in

attach the of that attach but solution, it's For is grow ZixArchive enhancement as with for capabilities, include very ZixArchive, advanced rate in recent the we to unified still for this XXXX. in nicely X%, to rates about days the well as eDiscovery expect early solution archiving,

to and XX%. As our growth migrate of more target third our of which to we continue able for attach be to the customers brings me rates Retention increase under was drive to our as year driver hosted we'll full well, offerings, retention stronger our just retention. our

we rate expected, drew XX% the final churn slightly million what rolled finally QX off talked in excess XXXX, below As which $X XXXX about in the of our is target.

than in our our I came growing us, With their of important from customers' excess customers This confidence migration to success our our when solution cloud. continuing organization that cloud to experience of in XX% churn we to visibility great Dave It's less that efforts, in from retention note behind have compares here. We're of and we now ACV the XX% XXX% and greater joined the in XX% increase rate XXXX. will QX with XXXX.

Approximately XXX of customers; XX% started and platform. with XXX XXX that cloud to XXXX customer we've we in made the migrations, to the made is XX XXXX, customers growing transitioned home roughly In platform. evident fact best success, platform it's number So, XXX cloud such seeing hardware We driving where retention. the we're that migrated another that and year. growth, most we were decrease in reduced strides Zix our at the our the end on-prem XXXX, of tremendous

our with foreseeable very a successful we of who renewals. number longer for securing have remain term plan closely instances, significant the As on-prem work those to been we've customers In we still customers, future.

drive year XX% for As in customers, XX help will This have -- on-prem of on-prem our renewed XX last rates on of of top XX for total our on-prem our we our pre we our to months. retention an us the of on Based conversations execute XXXX. already customers to hardware the a EMS bit bottom and time on migrate agreements think AppRiver now renew for some that ZZT our future, It's could for ZixEncrypt customers propensity for more than in worth the rise transition fact, I our product. with XX account in extended as three terms, and the to we're mentioned that higher XXXX on-prem we pipeline call, this ARR. customers noting close intermediate and ARR only hardware as

Now, about about time questions. I'll areas, call of it our growth AppRiver our progress to I've three relates we we as open some that talked for talking spend the with where before are the integration up

excited Office third-party transitioning I million large migration days. business two combined days to a have of security cloud, six As $XXX reductions exchange have February began they of now The our company opportunities XXX% and would XX,XXX accelerated of million the The year years email email team $X expanded first executive like providing $X to than email implement million channel the cloud-based distributors They XXth of them and of have meaningfully really per past opportunities a cost synergies and expenses; provider built the approximately they box, million Microsoft more your Cutler call, XXX scale will two, And the accounting of Mike thank fees, reductions. AppRiver, deep January developed and our founders transaction Modern to and of two a over our they of next integration of we recently, came customer and as to rich partners. installed companies. and of Scott approximately commitment a opportunities be growth security with attach ago product cross-selling second tier which the for and more just Workplace The $X business combined firms, Joel XX their Smith XX rate base like Solutions. and to the practice other. out PR led at end, a what largest the years. ARR over customers. more partners cost X,XXX than Murdoch, The the nominal significant across one are Through one, cost advertising include the XXth the value of able closed we on hosted care business outlined has firms, to of compensation with through; on year we about evolved creation MSP by with ahead, was to all as identify execute redundant on the expenses collaborate legal approximately opportunity advanced

approximately finally, million of and XX separations. AppRiver P&L result $X pretty evenly lines. balanced and as Zix and separations approximately across of were headcount reductions redundancies across were Third employee The the spread employee a

I savings right as reductions day by these that position, difficult and necessary one $X deliver elimination am headcount on million staff changes to away. reductions of the will have completed. pleased collaborating cost allow all teams As the the are, began been Executing

addition we for have delivering to In the cost synergies, four XXXX. priorities

our our integrated we identities. and the partners, unify we This values customers, email to will security one vision purpose means and work closely to First foremost, and be with will bringing work our cloud-based companies employees brand core frameworks to company. update together that we form and together and

are our brands customer We to disruption Because partners and identify integrate to future. XXXX. marketing, we so management customers. continue complementary, G&A, minimize these to go-to-market The will and as foreseeable to development with remain sales existing want we and for will to support motions during unchanged, expect the potential product the work intentionally organizations any organizations facing largely

will opportunities. pursue we Second, aggressively cross-selling

Zix hosted We early to and secure QX. selling to base expect secure the be early sell in position XXX by ZixEncrypt begin further expect partners exchange MSP the Office ZixArchive by to QX. AppRiver We to a customer to and

be will cross-selling our and our focus meaningful the channel on the of actively by development that AppRiver. Zix channel partners we engaging be biggest Third, in our partners beneficiaries combination and will We continuing acceleration the of believe channel opportunity.

are development extensively mentioned, software product Forward, and as integrated collaborating have already operations I the They we management, already week. this organizations.

protection on on Nautical to integrated we last conference. of value more line. will can They I be cost on aspects to our on and the and MSP the the delivered me meaningful They respective integration light couple provisioning top a dozen of deliver can build an focused partner closing move roadmap growth as of enable regional integration, week, accelerated that together. our customer threat that aggressively will So services we to post from and had ZixEncrypt to the our further the focus at platforms to seamless integrating with reinvested best opportunity partners drive bottom then savings product platform. AppRiver's and ZixArchive are

high a one-on-one XX% key conducting during opportunity. purchase with survey likelihood and next third-party customers had years. enhanced love partners them. indicated this bundle strong They relationship more cross-sell Our their My the enthusiastic partner AppRiver, reinforce they two study with AppRiver's data the diligence a to purchase compliance time to that our within email of encryption. leaders that these are solutions and particularly from They represent DLP want and MSP about

value strong important most a core their nearly As of acquisition I along meaningful component local with an provide email AppRiver, customers for begins to They competency, their to them customer customer of their process our relationships. listen always services their relationships. that making presence add with

make All of with and to the for their looking from margins. their increase and XXX Office I service protect differentiate partners, spoke their clients to better to it opportunities

is how AppRiver. how there very businesses Zix alignment we So to strategic are and evolving their want and a with they tight grow

either years. legacy base, us. cross-sell us a of purchase for partners opportunity in XXX Moving from Zix or a the secure to customer similar two contacting exchange that the the secure about next have had customers Zix XXX further high third-party We evidencing Office the survey Zix customers XX% Zix already of about have Zix Office indicated the likelihood hosted

a conclusion, growth. We the revenue was company. XXXX increased double-digit in to rates. attach returned we for year We achieved milestone record adjusted EBITDA. So our And

product first-year portfolio, by also represented our foundation also only build by We but our of future. enhancing and for of accomplished not underpinned provides ZixArchive, growth new our we cross-selling to ZixProtect be our orders capabilities, solid a over by of XX% our us strong to Meaningfully, which broadening go-to-market orders. reaccelerated which XX% upon new these

As XXXX, and to our capabilities we need. add additional continued look customers ahead we'll products cross-sell that

are a for intensely strong get and start. prepared Our sales team XXXX, to after ready we

dynamics and driven our positive We continue. business that have company to expect the market

opportunities opportunities investing the our five-year become full execute to excited through communications. and leading of the AppRiver achieve and in to profitability, value accelerate We're provider drive for the cloud-based shareholders. accelerating cross-selling protecting vision, our to solutions to and further for all business We ahead will leveraging enhance us order significant fully build in integrating of our expanded by growth, three-year customer on platform, our progress suite this our momentum our base of our

open that, we're the to questions. your for ready Mario? with call Now

Mike you. [Operator Craig-Hallum from comes Our Instructions] question Thank Capital. from Malouf first

is Your open. now line

I are and Thanks congratulations Great. AppRiver of you stuff you closing, the guys ahead of a bright got think. lot on certainly

at. could is maybe I coming a of One then to gross side model into you low give of AppRiver. us things just of to obviously color It that Thanks. the you're margins. the model down helpful? of the dove where with a down be on wanted on looks commentary just little bit channel, you particular are looks regards like bit R&D though, can just And relative margins would little explore pretty if but And the the because gross to some the

Got and Mike, kind words. it, Thanks, for thanks thanks. the Yes.

model for the going look we As at AppRiver. forward

about any – So, start we put to gross yes, the of the and as the to Zix proprietary there start Dave encryption archiving lower really side. going out talked opportunity then margins we email build and there's said as model are, as We, those technology as forward. we

which us, is for there opportunity good. there's So

move this to forward, XXX Going continues Office quickly. move to

we the were be success on proprietary offering, there or then dollar expect we and So I technology continued to of XXX reflects of on adding an have at hosted Office that a each to guidance add to want able dollar think exchange to margin where is selling invest a we been ours, really advanced bit they've platform, protection in you is. the the threat higher they it investing get than little in look and When R&D side, really that blend nautical margin on side. there lower the Yes, strongly gross across strongly. our

our reinvest said So we have able future the be together will down some growth we road to protection there, that's together be in we and savings bring leverage where further the have that for Dave to platforms for advanced our could one we or model as they'll the move and place bring and threat some especially call can on as opportunity there. be, -- potential

their model So we get out coming be R&D. overall us at company selling more much lower see sales our channel bit on on do with marketing on marketing. of and year blends to that continue to of X% you to percent R&D their be XX% with On more, a little cost to side this you selling to can margin plus and the coming through XX lower expect and

you see and companies just down that in of blend there, course that's synergies of bring the when then So two G&A that in coming line.

the XX%, that gross in projects we XX% QX in that to margins the expense get across at to forecasted So, with get XX% the enables year. of model end QX the the us operating that of synergies to

lower. the the if look this When of this that slide, those sit would reach you and to out keep going or XXX Got long-term And about, okay, helpful. end we you we need at then, when really it. only Can probably talk we two upper little just back XXX headwind you on same bit the is ARR? I conversely just what could were scenarios? the face model That's to say, reaching is a if

those being based are the to we able where differentiated for the on IT business the their to a in to XXX outsourcing meaningfully partners the their model these reflects providers in what we and complement to with strong line Office margin, seeing for opportunity many MSP mailbox first and the higher this market to one, also question. we Dave's very in and yeah, mailbox higher Well, where and email they're to the that provide response that moving IP are the security response win-win overall able provides the cloud providers see many, end margin. tie And reseller my we're XXX% providers us attached -- provide opportunity customer, small your cross-sell of end engage to medium MSP the to really the higher further see businesses, services and value

experiencing if So like we the business we get the were at lower that if the reflect our the and the we businesses past. really end, working with we'll high continuing in combined strong growth it that shape partners, get in be that would model, end, rates

the Thanks a color great. Okay, lot for good and luck.

Mike. Thanks,

Dougherty. from Turcotte Zack from comes question next Our

now Your open. line is

Catherine on Zack for Thanks, Trebnick.

impact. any sort through talked to in your general, relation the going is to there more I the to AppRiver end on So just integrations and in the the bit The if with a see you the detail quite partners. on acquisition about to call go-to-market of have specifically wanted

the in be You of XXX with had suite said AppRiver on the time at of general acquisition, timeline offerings? expect and an cloud in hosted Oracle on the bundle exchange the Office you that to plus Zix the Zix the suite what's platforms integrated -- selling

Great.

as we from MRR we April turn the I are as be we HSP growth last motions launched the really to on So as call, XXX% received December. September side the go-to-market proud complementary highly Zix on to the the of Zix

do, transacting our, so MSP continue, to to unabated, and XX,XXX as that and so I on transacting of have demand. MSP engage to a based partners work the And -- overlap, integrating There's expect and end expect with similarly VAR will as -- the on so customer that we partners compared the partners platform into AppRiver but partners appropriate to one we be side, the X,XXX lack working on partners MSP XX, Zix plan. go-to-market running mean, go-to-market program. XX AppRiver We little the existing would motion it's

part intact. more into ZixEncrypt that cross-selling that ordered platform will and where to able nautical be can to threat and numbers, ZixArchive hosted force secure synergies have Office What be then I able be effectively. exchange our early access cross And QX as skews integrating specific secure to specifically sales to and very expect them continue protection said, we in enabling partners opportunity. to go-to-market, will expect then we be and Zix on advanced and that We nautical the existing dates, as the XXX drive be an deployed will through remain

to be early Zix in offer. encryption AppRiver QX, the as beginning ZixArchiving and MSP partners that the So access will well able as offer

the starting unified the customers the initial reaction in announced customers to that actually new customers And second, Perfect. acquisition with or been what's the with demand or more, Okay. like enhancements the archiving for then for just a one additional from ZixArchive solutions? quarter, you from

really that it's XXX% product. capabilities. supervisory customer broad Yeah, strong It's really response new channel and to really with positive support cloud-based solution

as had customer couple of So, attach project the we're customers don't archiving because the takes excited solution, very a pleased will tasks for example, this good they protection migrate with we're additional the year the getting already relocate uptake. their updates launch data so sales about archive enhanced get and threat but the ZixArchive. We advanced as longer a their a often, that since is and

All guys. right. Thanks,

Thanks.

from Northland Tim next [Operator Instructions] Klasell question Securities. from Our comes

Your line now is open.

Hi, guys. some my And just the are quarter. of of Congrats have around the sort then well. I model questions on as

First, for and your ARR gross obviously QX out you've laid margins.

side you the margin sort embedding technologies of gross me excuse see AppRiver what by synergies AppRiver on margin the revenue Zix some wanted doing and to Thank offerings? and or will side. get Just AppRiver of technologies include improvements on into be for -- cross-selling the you. products synergies -- Will the feel any that there a some gross particularly them their

reflect level, and continuing -- then begins represent range continuing opportunities. businesses strong so additional the end to Yeah, is growth, in the the at organic the would guidance both that higher at a of of high cross-selling which low-end

early along to have depending to So, and we the paid early dates meet get respectively QX us of expected to QX products. these introduce

side. going AppRiver into nice in pretty that the represent the of QX beginning little time getting revenue then QX would will cross-selling in and which subscription but QX in We -- the wind with at takes that high-end fully, to course, have, model success a

Okay. Great. ... And then

model side orders Well, QX, with it higher once the starting gets little late subscription going, revenue -- overall takes the come the QX kind subscription see that feel all to model we the as little We've for taking into the it that in but meaningful a in on bit of QX before year of baked maybe of -- more taking But of next probably through uplift on time where QX a number. bit into to start right? impact.

sort speaking, side if on generally little begin help migrate, a solution, bit off Can into you that how would on us bookings archiving migrating of that MSP to Will somebody be long be they're archiving takes revenues. -- a there lag effect side. understand of then you -- And as else's particularly Okay. will themselves that the MSP Great. like a to you mentioned the maybe doing the turn assuming I'm bit? before little process the

new longer on forward what across well, doing seeing that in a would we platforms migrations new focusing both is on make but is nautical, that new beginning of MSPs for mailboxes over so We've -- Yeah, archiving there decisions the period the the MSPs we're ZixArchive so customers in are customers been I -- mailboxes. will of what time. migration preferred putting existing channel, be VAR the far offer and as expect going but announced said QX you direct

Great. one one. And Great. Okay. then final

maybe that where that us You Do in it be opportunity? able you down. little other you or around, $X Thank synergies, cost of may million think and you give prove those you. how bit the a conservative mentioned little quickly there's bit pretty million to got a much so do $X color maybe nailed were to

and/or And between leadership that teams impact, the able do culture Well, professional by the we growth -- but reinvestment Never month-by-month, going the be savings bottom be cost we do on to acceleration I drive itself as opportunities we day had do team, at strong and happens all would will to I'm management, any to on additional position I to think without able that. those positively collaborative always growth some -- in synergy the to hard going a look as really that, portion bringing on to one really and the value to the think customer redundancies turned that quarter-by-quarter so begin a do move line, collaborating I and again, both forward, revenue are but we'll to of do focus professionally identify growth future sides the that things in really of work closing. that, proud together we're attribute always of on then model, the able do and densification, execution of or opportunities side highest in it's to of our work day to ahead. one profitable teams. we in those strong leadership script

Okay.

you good. much. very Sounds Thank

to now remarks. over our turn question-and-answer to the concludes closing back this for time, his I'd like Mr. this call Wagner At session.

We again So, to time April. in again for for thank today. joining speaking with us and everybody I look forward your just you like to

today year for you quarter Thank us fourth full for and Zix call. XXXX joining earnings

now may You disconnect.