Rick Spurr - Chief Executive Officer
Susan Conner - Chief Financial Officer
Peter Wilensky - Vice President of Corporate Development & Government Affairs
Kevin Goldstein - Great Gable Partners
Mark Redding - Unidentified Company
Zix Corporation (ZIXI) Q4 2009 Earnings Call February 16, 2010 5:00 PM ET
Good day ladies and gentlemen and welcome to the fourth quarter 2009 year end Zix Corporation conference call. My name is Yvette and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions)
I would now like to turn the call over to Mr. Peter Wilensky, Vice President of Corporate Development and Government Affairs; please proceed, sir.
Thank you, Yvette. Good afternoon and thank you for joining Zix Corporation’s fourth quarter and year end 2009 conference call. This call is being recorded and a replay will be available after the call’s conclusion from our website or by dialing 888-286-8010 and entering the access code 13713238. This information can also be found at www.investor.zixcorp.com, which is the investors’ portion of our website.
Zix Corporation’s Chief Executive Officer, Rick Spurr will begin with an overview of the company and a discussion of our businesses, followed by a discussion of the Q4 2009 financial results by our Chief Financial Officer, Susan Conner. Mr. Spurr will then provide closing remarks. Afterwards we’ll be available to answer question from analysts and institutional investors and we’ll also be taking questions via e-mail, which can be sent to our Investor Relations mailbox firstname.lastname@example.org.
Before we get started, I would like to remind you that some of the our comments on matters such as forecasts of revenues, earnings, transactions, operating margins, and cash flow, contracts, or business, and trend information, which constitute forward-looking statements.
These matters are subject to a number of factors that could cause actual results to differ materially from our expectations. Those factors are described in the risk factors section of the company’s most recent 10-Q filing with the SEC. The company undertakes no obligation to publicly update or revise any forward-looking statements. We are provided a detailed explanation and reconciliation [Technical Difficulty]
With that, I’m pleased to turn the call over to Rick Spurr.
Thank you, Peter. Thank you to everyone for your participation in today’s call. I am very excited about where ZixCorp is today and where we’re headed. We finished 2009 on an extremely high note with record results in almost every major financial category, and as was previously disclosed, we expect 2010 to be the first year of GAAP profitability in the history of our company. Obviously a significant milestone in the company’s continuing evolution.
Before I dive into the discussion of 2009 and 2010, I’d like to take a moment to introduce Jim Brashear, our recently hired General Counsel and the newest member of our executive team. After conducting an extensive search to fill this critical position, I couldn’t be happier to have found someone with Jim’s qualifications and reputation.
Jim has extensive experience in corporate governance, technology law, securities law, M&A, and international transactions. Prior to joining ZixCorp, Jim was a partner at Haynes and Boone, a large renowned international corporate law firm. Prior to that, he spent over ten years at Sabre Holdings Corporation, where his last position was Senior Vice President, Deputy General Counsel, Corporate Secretary, and Chief Governance Officer. I’m pleased to welcome Jim to the company. I know he will be a valuable addition to our management team.
ZixCorp had a tremendous fourth quarter overall. Let me highlight a few items before turning the call over to our CFO Susan Conner, who will provide details of the financial results. We had our best sales performance in history in Email Encryption business with contributions from across the Board. Healthcare, finance, government, our partners Google and MessageLabs, other channel partners and resellers all had record quarter volumes for the quarter.
In the fourth quarter, we delivered $2.4 million in new first-year orders. The first time we have ever cleared the $2 million mark in a quarter and we didn’t just make it, but blew right by $2 million to $2.4 million. This record result was 35% higher than any previous quarter in the company’s history and 61% higher than the fourth quarter of 2008, all of which was particularly remarkable given the poor state of the economy last year.
While the fourth quarter demonstrated robust demand across all segments of our Email Encryption business, I’d like to focus on three specific areas, the impact of regulation, particularly in healthcare, the contributions from the OEM channel, and finally our continued success selling to the federal government.
Compliance with regulations has been a strong driver for our new orders. More specifically, stake loss such as in Massachusetts and Healthcare Regulatory Reform were significant contributors to our growth in Q4. As I’m sure, many of you know by now, HIPAA significantly expanded under the High-Tech Act, which was part of the stimulus package passed last February at ZixCorp, we refer to these new regular regulations as HIPAA 2.0.
In the past, we discussed the major elements of the HIPAA 2.0 regulations being new breach notification requirements, increased penalties for violations, and expansion of the law to cover business associates. Those service providers who deal with Protected Health Information and are now covered by the law for the first-time.
Examples of business associates include third party administrates who process claims, outsourced billing companies, legal or accounting firms that have access to protected health information, IT companies that assist with data management, medical transcription companies, and the list goes on.
You can see that in our increasingly outsourced economy, there was a vast network of companies that are now covered under HIPAA. Despite effective companies like ZixCorp and then educating the market on these rules, certainly released by HIMSS Analytics last quarter, indicated that one-third of these business associates still were not aware that HIPAA 2.0 even applied in that.
With these business associates plus all of the other companies that have yet to adopt the necessary tools to be complaint there were still plenty of opportunity for us, but another change HIPAA 2.0 that we haven’t emphasized in the past, is that provision that allows State Attorneys General to prosecute HIPAA violations. Before the High-Tech, only the U.S. Department of Health and Human Services could pursue such cases.
However, now there was a new avenue of enforcement, which could send a strong message to the market about the need for compliance tools like ours. State Attorneys General maybe the ideal weapon for addressing HIPAA compliance, since they have long track records of pursuing consumer protection cases and may more directly benefit from the exposure of a big case against a profile target like the insurance industry.
In fact last month, Connecticut’s Attorney General Richard Blumenthal filed the first state driven HIPAA lawsuit against such a company. Mr. Blumenthal seems to aggressively pursuing this HIPAA violation, while this lawsuit revolves around a lost laptop and exposes almost a 0.5 million patient records that had not been encrypted, the fact that a state was pursuing the case since and clear signal to the industry that enforcement landscape has changed.
We believe compliance with regulations including the new HIPAA laws, other encryption laws such as the Nevada law and the Massachusetts law, which is currently slated to become effective March 1 and publicized enforcement cases will lead to continued demand for our service throughout this year.
With regard to demand overall, industry analysts Osterman Research predicted that the worldwide Email Encryption market will grow 20% per year on average over the next few years, due in part to this increased emphasis on regulatory compliance. Our investment in OEMs is also starting to payoff; in aggregate they marked a record result with $377,000 in new first-year orders for the quarter from our partners, exceeding any previous quarterly contribution by 47%.
Google in particular had its highest contribution ever, message labs now a division of Symantec had its second best contribution in new first-year orders, because our partners were particularly impacted by the economy in the first part of 2009.
We’re pleased with these results and now believe that we can regain the momentum that was building in the later half of 2008, before the economic downturn hit the market. By the way I mentioned Google had its best quarter ever in terms of contributions to new first-year orders and its note worthy that also in the fourth quarter we renewed our agreement with them for yet another year.
Another area that remains particularly strong for us is the financial services sector. As many of you know we have built our financial services strategy around securing all of the federal banking regulators, collectably known as the FFIEC and then armed with these powerful reference customers marketing to their regulated institutions to drive business.
We now have over 1,200 financial services companies as customers. So I would say its been a successful strategy, but in addition to get the creditability with banks, credit unions and other institutions our success with these regulators has given us exposures to other agencies within the federal government.
In the fourth quarter we had a particularly strong contribution from a federal government to our new first-year orders. Most specifically, we closed a number of deals in the Treasury Department. For instance, we recently signed the Alcohol Tobacco Tax and Trade Bureau, when a CIO told us he didn’t want to be the last department to adopt ZixCorp’s technology.
We also expanded the Treasury’s Department of offices relationship, which started out as a 10 seat ZixMail account in October of 2008 and have since been increased by 3000 seats with our VPM appliance, plus 12 TLS connections primarily to secure communications with TARP fund recipients, including the number of household names in the financial services industry.
We have additional successes, including adding the Bureau of Public Debt and dramatically expanding our contract with FDIC. In addition, we’re the exclusive platform for the best known financial regulator in the nation, who unfortunately we can’t name publicly, but we obviously value the revenue of these contracts generate. I believe the more important message is that we’ve earned the confidence from some of the most important government and financial institutions in the country.
We’re using our service and communicating to 1000s of institutions that we securely receive ZixCorp branded e-mails. That ZixCorp has the ability to provide exclusive Email Encryption to these institutions that speaks volumes about the quality of our technology, the security, reliability and scalability of our infrastructure and our high level customer service.
When we talk about our technology, what is it that differentiates us from our competition? We discussed in the past, the power of the ZixDirectory, our community of IDs, which now exceeds 20,000 million members and is the backbone from our service. Certainly for a new customer, the ability to instantly utilize all of these addresses, especially in their community of interest makes adoption much simpler, and the fact that all members of the directory can use their same credentials is a great convenience for both senders and receivers, but our ease of use goes much further than that.
More importantly, all of our appliance customers, which are the vast majority of our users, will experience automatic and transparent secure e-mail exchange when communicating with each other. What do we mean by “transparent?” Well, a user can compose an e-mail and hit send just like any other e-mail, and our technology takes over, and will automatically screen the e-mail and all of its attachments, determine whether the contents should be encrypted according to the policies established by our customer, and if necessary encrypt and send it onto the recipient.
From the recipient’s perspective, which most of our competition seems to forget about, the message is automatically decrypted by the appliance, and then placed in the clear into the intended inbox. So other than the footer that indicates the message was secured by ZixCorp, the recipient may not realize that the e-mail was ever encrypted at all. No password is required. ZixCorp solution sets a new standard for the exchange of secure and transparent e-mail.
Neither the sender nor the receiver has to do anything differently than they would with every other e-mail they handle and that’s what we mean by transparent and automatic; a superior end user experience that only ZixCorp customers enjoy. We believe this kind of encryption is what people prefer.
We’re the only company in the industry that’s built its technology to operate transparently, completely embedded, for both senders and receivers, which is a key differentiator for us in this market. This capability and message are being recognized as powerful advantages by our customers, prospects, and partners.
What it comes down to for them, is one simple question. Why would you introduce any added headaches with another solution, when the ZixCorp solution is secure and transparent, obviously our recent results would seem to indicate the market agrees.
Let me briefly mention our e-Prescribing business, before I turn the call over to Susan to discuss the financial results. On December 8, 2009, we announced our intention to wind down and exit this business by the end of 2010. As we stated in that announcement, we intend to fulfill our contractual obligations to our customers and users, after which we want to make a clean break.
With this strategy in mind, we have already significantly reduced headcount, which Susan will discuss in more detail. Now on the bottom line, this business is expected to be breakeven to slightly profitable for the company in 2010. Obviously going forward, we will continue to deemphasize the e-Prescribing business and devote less time discussing it.
On a related note with our exit from the e-Prescribing business, our Email Encryption business has much greater visibility, and therefore our outlook is much more predictable. That’s why we’re able to provide annual guidance for the company as we have now for 2010. The predictable nature of our business comes from the recurring revenues of our subscription model, combined with a long track record of renewals, all on top of a largely fixed cost structure.
Because of this greater predictability, as well as the fact that we’re reporting earlier after the close of each quarter, we decided it is no longer necessary to provide the quarterly CEO update that we issued for the last few years. However, since we’re well into this quarter, we will go ahead and issue an update in April for Q1, but I want to let everyone know that the April CEO update, is the last one we intend to release.
With that, let me turn the call over to Susan to discuss the fourth quarter financial results. Susan.
Thanks Rick, and good afternoon. [Technical Difficulty] before that we achieved better than expected fourth quarter and total year results in our key financial metrics, new first-year orders, revenue, and non-GAAP adjusted earnings. We have now recorded two consecutive quarters of positive adjusted earnings which as never occurred in the company’s history.
As you may recall, Q3, 2009 was the first quarter we ever recorded positive adjusted earnings. Record revenues in our Email Encryption business, as well as significant effort to reduce expenses, most notably in the e-Prescribing business have resulted in a bottom line that is now improving quarter-after-quarter.
As Rick mentioned, Email Encryption achieved a record and new first-year orders for the fourth quarter 2009 of $2.4 million. This brought us to $6.5 million for the full year of 2009, another record. In addition to growth in new first-year orders, we have also maintained a strong renewal rate for eligible contracts at 92.5% for the fourth quarter, resulting in a rate of 91%.
Let’s now discuss the details of the fourth quarter and year end financial results, beginning with revenue. We achieved company wide revenues for the fourth quarter of $8.2 million, which exceeded the top end of our previously provided guidance of $7.9 million to $8.1 million, and which compares to $7.2 million for the fourth quarter of 2008. This revenue was comprised of $7.1 million from Email Encryption and $1.1 million from e-Prescribing.
Email Encryption revenue for the fourth quarter increased $1 million, representing a 17% increase over the comparable 2008 figure. The increase consisted of $100,000 from our OEM channels, which is a 30% increase from the fourth quarter last year, and a $900,000 increase from direct sales to enterprise and corporate customers.
Included in the improved results is a $127,000 catch-up entry associated with a customer driven delay in revenue recognition. These increases were due to the growth inherent in our successful subscription model with steady additions to the subscriber base. E-Prescribing revenue for the fourth quarter was $1.1 million which is flat with the fourth quarter of last year.
For the full year ended 2009, our companywide revenues were $30.7 million versus $28 million for 2008, an increase of 9%. Email Encryption revenues were $26.4 million for the year, compared to $22.6 million in 2008, an increase of 17% and e-Prescribing revenues were $4.2 million in 2009, compared to $5.4 million in 2008, a decrease of 22%. The year-over-year change in revenue for our Email Encryption business is consistent with the explanations I provided related to the fourth quarter.
Looking at companywide bookings backlog, we ended the fourth quarter and year at $44.5 million, which is a 19% increase over the bookings backlog of $37.4 million as of 2008, and a 9% increase over the third quarter of 2009 bookings backlog of $41 million. Our end user order backlog is comprised of contractual commitments that we expect to amortize into revenue in the future, as services are performed.
The timing of revenue recognition is affected by both the length of time required to deploy a service, and the length of the actual service contract. We anticipate approximately 60% of the total backlog being recognized into revenue within the next twelve months.
In summary, we’re extremely pleased to see the continued year-over-year growth in our Email Encryption revenues, especially given the tough economic climate this past year. I will now review our adjusted gross profit and adjusted operating margin results, as well as a detail on our expenses. I will remind you that my following comments are based upon numbers adjusted for non-recurring items and non-cash stock-based compensation.
For further information, I refer to you our reconciliations of GAAP to non-GAAP financial measures tables, which are reported in both today’s press release and on our company website. We continue to manage our headcount to meet the needs of the business. With the December announcement that we are exiting the e-Prescribing business and winding that down throughout 2010, we reduced 12 e-Prescribing positions in December, in addition to the 14 positions eliminated in October as discussed in our last call.
Severance costs of approximately $700,000 in Q4 associated with these eliminated positions are excluded from the adjusted net earnings. We achieved a company-wide adjusted gross profit for the fourth quarter of $6.3 million, 77% of revenues. This compares to $4.9 million, 68% of revenues for the same quarter last year and on a sequential basis, it compares to $5.8 million, 74% of revenues for the third quarter of 2009.
The Email Encryption adjusted gross profit for the fourth quarter was $5.8 million, 82% of revenues, compared to $5.1 million in the same period last year, 83% of revenues. The performance was primarily driven by the $1 million increase in revenue, partially offset by a $300,000 increase in expenses. As we’ve started to wind down e-Prescribing, the allocations of the some of the shared fixed costs are shifting to Email Encryption, driving a fractionally smaller margin in Q4.
These allocated costs include for 2010 approximately $400,000 of annual corporate expenses, such as insurance and facility costs, and an additional $400,000 of annual personnel related costs for employees who provide services for both lines of business.
However, as we discussed in detail in previous quarters, our overall cost structure remains relatively fixed, because of the nature of our scalable technology, which is driven by our focus on automating certain services, product simplification, remote deployments, and the application of more efficient and lower cost technologies.
Our e-Prescribing adjusted gross profit was $471,000, 43% of revenues, compared to a negative $200,000 or negative 17% of revenues for the same quarter last year. This improvement in our adjusted gross profit is due primarily to a $700,000 reduction in our cost of revenues, driven from lower costs between periods due to lower headcount described above and also the resulting lower allocated costs.
Overall company-wide adjusted gross profit for full year 2009, was $22.1 million or 72% of revenues, compared to $18.5 million or 66% of revenues in 2008, which is a 19% increase year-over-year. With regards to operating expenses, adjusted R&D and SG&A expenses totaled $5 million in the fourth quarter of 2009, compared to $5.5 million for the same period last year.
While R&D expenses were approximately $1.5 million in both periods, year-over-year SG&A expenses decreased by about $400,000. This SG&A expense decrease in 2009 is primarily due to lower headcount, resulting from actions taken to align expenses with the needs of our business, mainly in the e-Prescribing segment.
Overall, company-wide adjusted R&D and SG&A expenses for the full year 2009 were $21.7 million, compared to $21.9 million in 2008. As we enter 2010, we planned for continued R&D investment in our Email Encryption products, adding new features including language localization flexibility, and iPhone support.
Our company-wide adjusted operating margins for the fourth quarter, was $1.3 million or 16% of revenues. This compares to a loss of $600,000 or negative 8% of revenues for the same quarter last year and on a sequential basis it compares to $723,000 or 9% of revenues for the third quarter of 2009.
Overall, company-wide adjusted operating margin for the full year 2009 was $377,000, or 1% of revenues compared to a loss of $3.5 million or negative 12% of revenues in 2008. Our capital expenditures for the fourth quarter were $289,000. Depreciation expense for the quarter was approximately $341,000, and is recorded in the various P&L line items, with approximately 70% being recorded in cost of revenues. Capital expenditures for the full year of 2009 were $1.1 million.
Turning to cash flow, cash and cash equivalents were $13.3 million at December 31, 2009, compared with $12.4 million at September 30, 2009, and $13.2 million at December 31, 2008. We provided guidance in our last call, that our cash position at the end of the year would be approximately $13 million. We exceeded our estimate due in part, to record breaking Email Encryption new first-year orders. We expect cash to continue to grow throughout 2010, as our revenue and earnings increase.
Our company-wide adjusted net income for the fourth quarter was $1.2 million, which compares to a $321,000 loss for the same period in 2008. Our adjusted net income per share of common stock for the quarter was $0.02, versus breakeven for the same period in 2008. For the full year 2009, company-wide adjusted net income was $506,000, compared to a loss for 2008 of $2.9 million.
Basic adjusted net income per share for 2009 was $0.01 per share of common stock, versus a loss for 2008 of $0.05 per share of common stock. For our financial outlook for the first quarter of 2010, we project our fully diluted adjusted earnings per share to be between $0.01 and $0.02 per share.
Since we now expect to have positive GAAP earnings, our share count is assumed to include the dilutive effect of additional shares associated with approximately 3 million to 4 million warrants in options that are expected to be in the money. Of course, the share count could vary based upon the actual performance of our stock.
These earnings results are supported by our revenue guidance ranging from $8 million to $8.2 million, again reflecting continued growth in our Email Encryption business, somewhat offset by a decline in e-Prescribing. As announced on January 6, we expect e-Prescribing business to be breakeven or slightly positive for the year. In Q1, this business is projected to generate over $200,000 in operating income, decreasing to an operating loss in subsequent quarters as revenue declines.
To reiterate our previously announced full year guidance, we project company-wide 2010 revenues to be between $34 million and $36 million, of which e-Prescribing revenues would comprise $2.1 million to $2.6 million. For full year 2010, fully diluted adjusted earnings per share are projected to be between $0.08 and $0.11.
This guidance will yield an adjusted EBITDA margin in the mid-20s, and an adjusted operating margin of approximately 20%. To close my comments, I’ll reiterate how pleased I am with our results. We made significant progress during 2009, in defining a sustainable business model that will facilitate growth in 2010 and beyond.
With that, I will turn it back it Rick. Rick.
Thank you, Susan. ZixCorp delivered a tremendous fourth quarter to finish up a solid year in 2009, exceeding guidance and setting records in most major financial metrics and we’re expecting to build on that success in 2010. Drivers of demand for our Email Encryption service remain strong this year, with last of the HIPAA 2.0 regulations becoming effective and state laws such as in Massachusetts driving compliance, and prospects for increased enforcement on the rise.
Our opportunities are strong across all of our markets, including financial services, the government sector, and our OEM channels, in addition to healthcare, of course. We believe our technology will drive success for us, and that we’ve uniquely positioned to offer transparent and automatic Email Encryption that people prefer to use, and will protect our customers’ most important relationships, the relationships with their partners and customers.
We positioned ourselves to achieve a significant milestone for the company this year, GAAP profitability for the first time ever. I look forward to updating on you on our progress throughout the year. I also want to let everyone know that I will be presenting at the America’s Growth Capital Pre RSA Conference in San Francisco in a couple of weeks on March 1. If you are interested in meeting with us out there, I invite you to contact us to arrange a time.
Thanks for your continued interest and support, and now let’s turn this to the operator for questions.
(Operator Instructions) Your first question comes from Kevin Goldstein - Great Gable Partners.
Kevin Goldstein - Great Gable Partners
A couple of questions, your guidance for the first quarter, I’m kind of backing into this because I joined a little bit late. Looks like the growth rate in the first quarter for your revenue guidance is little bit lower than your growth rate for the year. So you had a very good fourth quarter in terms of new orders. I wanted to get a sense of how when new orders come in, how those are ultimately recognized in terms of how long does it take to implement? What’s the normal process?
Kevin, that’s a great question. Just because an order is closed on December 31 of 2009, doesn’t mean it will be recognizing revenue necessarily in January. So we have anywhere from about a 45-day lag until the actual deployment begins and then depending upon where it falls within the quarter, we have a practice if it occurs in the first half of the quarter, then we begin revenue recognition.
If it begins in the second half of the quarter, we wait until the following quarter. So there is somewhat of a lag that is there when it comes to the recognition of these new first-year orders that we have coming in from the fourth quarter.
I think part also that you’re seeing in our guidance, and I am not sure if you’re looking at Email Encryption or if you’re looking at e-Prescribing, but of course the e-Prescribing revenue is going to continue to decline as we go throughout the year and in fact the e-Prescribing revenue that we’re expecting for the first quarter is less than it was in the fourth quarter. So you will see some of that trending as we go throughout the year.
Kevin Goldstein - Great Gable Partners
My next question is, I want to make sure I heard you correctly. Sounds like $800,000 of annual expense that used to be put into the cost of goods sold of e-Prescription that will now be put into the e-mail business, which to me your explanation was right. Is that right, $800,000?
Yes, it is correct. Its $800,000, but it’s not necessarily all in cost of goods sold. It is actually spread. I am sorry, I don’t know the spread right now, but it will show up in cost of goods sold. It will show up in R&D. Those are going to be your primary splits for that.
Kevin Goldstein - Great Gable Partners
Did you say how much of that expense was in the fourth quarter, how much we saw of that?
No. I did not because those numbers are changing. Obviously that $800,000 that I talked about is what’s left in the business for 2010 and that’s really what’s going to affect us going forward.
Kevin Goldstein - Great Gable Partners
Sounds like by the end of the year gross margins, I don’t know how much is going to R&D versus COGs, but I mean sounds like at the end of the year gross margins will be in the high 70s and 79 range for the e-mail business?
Yes. I would think that our trend is going to be similar to where we are right now.
Kevin Goldstein - Great Gable Partners
Then just in the various onetime item that are in your non-recurring, besides from the stock compensation, everything else is just e-Prescription, there’s no onetime items in the e-mail business?
Well, again of course we’ve got the non-cash stock-based compensation, which is the biggest number that is adjusted out of our adjusted earnings, but the non-recurring items, you’re right, it is e-Prescribing. That’s about $400,000 this year.
Your final question comes from Mark Redding - Unidentified Company.
Mark Redding - Unidentified Company
My question and again I maybe wrong because again very comprehensive, so excuse me if I don’t have the percents on the money. Email Encryption, I am not sure if you mentioned it was 91% or 92% reenlistment rate and after my question, certainly please correct me, but I wanted to know, do we know where the business that’s not reaping again, do we know where that’s going and do we know why we’re not 96%, 97%, 98%?
Yes. I will answer that. You did have the numbers right. I will reiterate those in the fourth quarter, specifically for those contracts that came up for renewal. We renewed 92.5% of that revenue and then when we take that and consider the renewal across all four quarters in aggregate for 2009, we renewed 91% of our revenues that came up for renewal throughout the year. The 9% comes from a variety of places, and it is not any one glaring thing that happens.
You lose obviously some to competitive inroads and in 2009 with the state of the economy, there was much more scrutiny on some of the IT budgets, and people were doing things that in previous years were not worth the time and effort or saving a few dollars on Email Encryption, given how disruptive that is to the e-mail workflow and your partners and customers.
All that is something people don’t typically consider, but last year a lot of the IT guys had extreme pressure to reduce budgets across the Board, and we have one competitor in particular, Cisco that is always willing to sell a lower function solution at a lower price.
The other thing that can occur, is that you don’t lose to a competitor, but that you lose either some percentage of the customers that are covered seats in an account, which isn’t very typical frankly, but on occasion that will happen if somebody is really getting chintzy, but that doesn’t really happen that often, but you do last year, in particular sometimes a customer will negotiate and press to you a point, where in order on retain the account they get a lower price from you.
Our denominator for this measure is revenue year-on-year, with the same base of users and the same mix of products ad so if you have the same number of users and the same mix of products, but just beat you over the head to get your price down, that will affect your overall renewal rates.
Mark Redding - Unidentified Company
By the way, I think 92.5 given the past year, knowing that for the whole mix of the year was 91 as you say, that’s great work.
The team gets measured of course on this number, and everybody fights to keep it up and losing to a competitor is just really, really bad thing, and the technology as I alluded to is quite sticky.
When you’re communicating with all of your customers and all of these IDs are there, and e-mail sailing back and forth to send out a note to everybody in the company, and your customers says anywhere changing horses here, everybody has to re-register and get new passwords, it is a hard thing. So typically people don’t want to go through it.
I probably should mention, there’s one other category that does recur almost always, and that’s the result of mergers and acquisitions and bankruptcies. People just flat go out of business, or merge with somebody else, and every quarter we’ll have a little bit of loss from that to this.
With no further questions in the queue, I would now like to turn the call back over to Mr. Rick Spurr, CEO, for closing remarks. Please proceed sir.
Thank you very much, and as I said, thanks for your participation. I trust that in the past those of who want to drill deeper will of course call us and we’ll be happy to do that. I mentioned we’re going to the AGC Conference on March 1; we’re also going to be in New York and Boston over the next couple of days, so we’re excited about getting the story out. Thanks again for joining us.
Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.