Zix Corporation Close to Securing Profits

Zix Corporation (ZIXI) is a component in the ETF Innovators Global Health IT Index which offers email encryption and electronic prescribing (e-prescribing) solutions, with the latter poised to experience significant growth thanks to a Medicare incentive program that started this year to encourage prescribers to make the switch from handwritten scripts. The email encryption business accounted for about 81% of 2008 revenue with major clients including hospitals, health insurers, banks, credit unions, and other financial services companies (see here).

Last month, Zix Corporation reported 4Q08 and FY08 revenue of $7.2M and $28M, respectively, compared to $7M and $24.1M in the corresponding periods during 2007. ZIXI ended the year with cash/equivalents of $13.2M and posted a GAAP net loss for FY08 of $5.4M, compared to a loss of $8.1M in 2007. Zix Corporation has a market cap around $70M with zero debt and 63.3M shares of common stock outstanding.

The Company's email encryption business was strong in 2008, posting 26% annual revenue growth and 83% gross margin. ZIXI expects this business segment to continue posting strong results in 2009, which will add to expected gains in e-prescribing thanks to the Medicare incentive program which encourages adoption of the technology through higher reimbursement levels (in addition to lower payments starting in 2012 for those who do not make the switch).

The email encryption business posted 4Q08 and FY08 revenue of $6.1M and $22.6M, respectively, which represents increases of 15% and 26% from the year-ago periods. The ZixDirectory of email encryption users reached a new record level of 14 million members, with a growth rate of about 100,000 new addresses added on a weekly basis.

e-Prescribing revenue for 4Q08 and FY08 was $1.1M and $5.4M, respectively, compared to $1.7M and $6.1M in the year-ago periods. The decline was mainly attributable to a decline in fee revenue after reaching a contractual cap in a single program. Several new deals were signed during 4Q08, including Blue Cross in Alabama (up to 300 prescribers), Aetna in New Jersey (AET) (up to 1,000 prescribers), and UnitedHealth in Texas (UNH) (up to 200 prescribers).

Zix Corporation's PocketScript exceeded expectations for e-prescribing deployment during 4Q08, registering 201 versus guidance of 150 deployments. The PocketScript service processed over 2.2 million e-scripts during 4Q08, bringing the full-year total number of e-scripts processed to 8.6 million (up 16% over 2007).

Zix Corporation provided 1Q09 revenue guidance of $7.1-7.4M with 250-300 e-prescribing deployments expected. Adjusted earnings per share are expected to show a small loss of between 1-2 cents. ZIXI is also exploring partnerships to reduce costs and broaden the distribution of its e-prescribing technology, although the Company did not provide a specific timeline for any announcements.

Disclosure: no positions

Comments

[Ben Around:]

There is a lot of potential for this company.
But we need the officers to get out and do the talking.
They don't seem to get it about P.R. for a company.

I think the best bet for us, longs, is for the company to put themselves on the market.

Google, microsoft, yahoo are our market.

Mar 17 11:32 AM

[ManAboutDallas:]

Zix would be a perfect acquisition for ACS. And amazingly enough, they're right across Haskell Street from each other.

Mar 17 03:56 PM

[britguy:]

getting replaced at Message Labs....unofficial but they are no longer selling Zix

Mar 19 02:18 PM